Correlation Between Ethereum Classic and Polkadot

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

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

Diversification Opportunities for Ethereum Classic and Polkadot

0.97

Correlation Coefficient

Ethereum Classic  Polkadot

Almost no diversification

The 3 months correlation between Ethereum and Polkadot is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum Classic and Polkadot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polkadot and Ethereum Classic 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 Ethereum Classic are associated (or correlated) with Polkadot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polkadot has no effect on the direction of Ethereum Classic i.e., Ethereum Classic and Polkadot go up and down completely randomly.

Pair Corralation between Ethereum Classic and Polkadot

Assuming the 90 days trading horizon Ethereum Classic is expected to generate 1.32 times less return on investment than Polkadot. But when comparing it to its historical volatility, Ethereum Classic is 1.32 times less risky than Polkadot. It trades about 0.24 of its potential returns per unit of risk. Polkadot is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  406.00  in Polkadot on September 2, 2024 and sell it today you would earn a total of  489.00  from holding Polkadot or generate 120.44% return on investment over 90 days.

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

Ethereum Classic  vs.  Polkadot

Ethereum Classic

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum Classic are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Ethereum Classic exhibited solid returns over the last few months and may actually be approaching a breakup point.

Polkadot

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Polkadot are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Polkadot exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ethereum Classic and Polkadot

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

The idea behind Ethereum Classic and Polkadot 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.