Correlation Between Ethena and Thorchain

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

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

Diversification Opportunities for Ethena and Thorchain

0.81

Correlation Coefficient

Ethena  Thorchain

Very poor diversification

The 3 months correlation between Ethena and Thorchain is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Ethena and Thorchain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thorchain and Ethena 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 Ethena are associated (or correlated) with Thorchain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thorchain has no effect on the direction of Ethena i.e., Ethena and Thorchain go up and down completely randomly.

Pair Corralation between Ethena and Thorchain

Assuming the 90 days trading horizon Ethena is expected to generate 1.52 times more return on investment than Thorchain. However, Ethena is 1.52 times more volatile than Thorchain. It trades about 0.27 of its potential returns per unit of risk. Thorchain is currently generating about 0.18 per unit of risk. If you would invest  21.00  in Ethena on September 4, 2024 and sell it today you would earn a total of  63.00  from holding Ethena or generate 300.0% return on investment over 90 days.

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

Ethena  vs.  Thorchain

Ethena

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ethena are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ethena exhibited solid returns over the last few months and may actually be approaching a breakup point.

Thorchain

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Thorchain are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Thorchain exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ethena and Thorchain

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

The idea behind Ethena and Thorchain 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.