Correlation Between Solana and XRP

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Can any of the company-specific risk be diversified away by investing in both Solana 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 Solana and XRP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Solana and XRP, you can compare the effects of market volatilities on Solana 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 Solana with a short position of XRP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solana and XRP.

Diversification Opportunities for Solana and XRP

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Solana and XRP is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Solana and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and Solana 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 Solana 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 Solana i.e., Solana and XRP go up and down completely randomly.

Pair Corralation between Solana and XRP

Assuming the 90 days trading horizon Solana is expected to generate 2.16 times less return on investment than XRP. But when comparing it to its historical volatility, Solana is 1.42 times less risky than XRP. It trades about 0.15 of its potential returns per unit of risk. XRP is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  33.00  in XRP on June 30, 2022 and sell it today you would earn a total of  5.00  from holding XRP or generate 15.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Solana  vs.  XRP

 Performance (%) 
       Timeline  
Solana 
Solana Performance
0 of 100
Over the last 90 days Solana has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Solana may actually be approaching a critical reversion point that can send shares even higher in October 2022.
XRP 
XRP Performance
0 of 100
Over the last 90 days XRP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, XRP sustained solid returns over the last few months and may actually be approaching a breakup point.

Solana and XRP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Solana and XRP

The main advantage of trading using opposite Solana and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solana 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 Solana 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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