Correlation Between Wrapped Bitcoin and XRP

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

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

Diversification Opportunities for Wrapped Bitcoin and XRP

0.61

Correlation Coefficient

Wrapped Bitcoin  XRP

Poor diversification

The 3 months correlation between Wrapped and XRP is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Wrapped Bitcoin and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and Wrapped Bitcoin 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 Wrapped Bitcoin 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 Wrapped Bitcoin i.e., Wrapped Bitcoin and XRP go up and down completely randomly.

Pair Corralation between Wrapped Bitcoin and XRP

Assuming the 90 days trading horizon Wrapped Bitcoin is expected to generate 0.61 times more return on investment than XRP. However, Wrapped Bitcoin is 1.65 times less risky than XRP. It trades about 0.01 of its potential returns per unit of risk. XRP is currently generating about -0.02 per unit of risk. If you would invest  9,772,642  in Wrapped Bitcoin on February 3, 2025 and sell it today you would lose (157,367) from holding Wrapped Bitcoin or give up 1.61% of portfolio value over 90 days.

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

Wrapped Bitcoin  vs.  XRP

Wrapped Bitcoin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wrapped Bitcoin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Wrapped Bitcoin is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

XRP

Risk-Adjusted Performance

Very Weak

Over the last 90 days XRP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, XRP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Wrapped Bitcoin and XRP

The main advantage of trading using opposite Wrapped Bitcoin and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wrapped Bitcoin 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 Wrapped Bitcoin 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.