Correlation Between XRP and Merlin Chain

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

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

Diversification Opportunities for XRP and Merlin Chain

0.04

Correlation Coefficient

XRP  Merlin Chain

Significant diversification

The 3 months correlation between XRP and Merlin is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding XRP and Merlin Chain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merlin Chain and XRP 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 XRP are associated (or correlated) with Merlin Chain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merlin Chain has no effect on the direction of XRP i.e., XRP and Merlin Chain go up and down completely randomly.

Pair Corralation between XRP and Merlin Chain

Assuming the 90 days trading horizon XRP is expected to generate 2.41 times less return on investment than Merlin Chain. But when comparing it to its historical volatility, XRP is 1.66 times less risky than Merlin Chain. It trades about 0.08 of its potential returns per unit of risk. Merlin Chain is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  8.39  in Merlin Chain on February 1, 2025 and sell it today you would earn a total of  1.35  from holding Merlin Chain or generate 16.09% return on investment over 90 days.

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

XRP  vs.  Merlin Chain

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.

Merlin Chain

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merlin Chain are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Merlin Chain exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with XRP and Merlin Chain

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

The idea behind XRP and Merlin Chain 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.