Correlation Between NEO and XRP

Can any of the company-specific risk be diversified away by investing in both NEO and XRP at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NEO and XRP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NEO and XRP, you can compare the effects of market volatilities on NEO and XRP and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NEO with a short position of XRP. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEO and XRP.

Diversification Opportunities for NEO and XRP

0.23

Correlation Coefficient

NEO  XRP

Modest diversification

The 3 months correlation between NEO and XRP is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding NEO and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and NEO is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NEO are associated (or correlated) with XRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XRP has no effect on the direction of NEO i.e., NEO and XRP go up and down completely randomly.

Pair Corralation between NEO and XRP

Assuming the 90 days trading horizon NEO is expected to generate 1.7 times more return on investment than XRP. However, NEO is 1.7 times more volatile than XRP. It trades about -0.05 of its potential returns per unit of risk. XRP is currently generating about -0.14 per unit of risk. If you would invest  1,879  in NEO on February 6, 2024 and sell it today you would lose (213.00) from holding NEO or give up 11.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

NEO  vs.  XRP

NEO

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEO are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NEO exhibited solid returns over the last few months and may actually be approaching a breakup point.

XRP

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in XRP are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XRP may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with NEO and XRP

The main advantage of trading using opposite NEO and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEO position performs unexpectedly, XRP can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in XRP will offset losses from the drop in XRP's long position.

The idea behind NEO and XRP pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.