Correlation Between True USD and Litecoin

Can any of the company-specific risk be diversified away by investing in both True USD and Litecoin 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 True USD and Litecoin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between True USD and Litecoin, you can compare the effects of market volatilities on True USD and Litecoin 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 True USD with a short position of Litecoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of True USD and Litecoin.

Diversification Opportunities for True USD and Litecoin

0.67

Correlation Coefficient

True USD  Litecoin

Poor diversification

The 3 months correlation between True and Litecoin is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding True USD and Litecoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litecoin and True USD 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 True USD are associated (or correlated) with Litecoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litecoin has no effect on the direction of True USD i.e., True USD and Litecoin go up and down completely randomly.

Pair Corralation between True USD and Litecoin

Assuming the 90 days trading horizon True USD is expected to generate 13.45 times less return on investment than Litecoin. But when comparing it to its historical volatility, True USD is 6.65 times less risky than Litecoin. It trades about 0.05 of its potential returns per unit of risk. Litecoin is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,546  in Litecoin on January 20, 2024 and sell it today you would earn a total of  1,583  from holding Litecoin or generate 24.18% return on investment over 90 days.

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

True USD  vs.  Litecoin

True USD

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in True USD are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, True USD is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Litecoin

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Litecoin are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Litecoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with True USD and Litecoin

The main advantage of trading using opposite True USD and Litecoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if True USD position performs unexpectedly, Litecoin 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 Litecoin will offset losses from the drop in Litecoin's long position.

The idea behind True USD and Litecoin 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.