Correlation Between Bitcoin and XRP

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

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

Diversification Opportunities for Bitcoin and XRP

0.84

Correlation Coefficient

Bitcoin  XRP

Very poor diversification

The 3 months correlation between Bitcoin and XRP is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and 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 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 Bitcoin i.e., Bitcoin and XRP go up and down completely randomly.

Pair Corralation between Bitcoin and XRP

Assuming the 90 days trading horizon Bitcoin is expected to generate 2.33 times less return on investment than XRP. But when comparing it to its historical volatility, Bitcoin is 1.96 times less risky than XRP. It trades about 0.26 of its potential returns per unit of risk. XRP is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  56.00  in XRP on September 1, 2024 and sell it today you would earn a total of  124.00  from holding XRP or generate 221.43% return on investment over 90 days.

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

Bitcoin  vs.  XRP

Bitcoin

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

XRP

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in XRP are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XRP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bitcoin and XRP

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

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.