Correlation Between Algorand and Ethereum

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

Diversification Opportunities for Algorand and Ethereum

0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Algorand and Ethereum is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Algorand and Ethereum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethereum and Algorand 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 Algorand are associated (or correlated) with Ethereum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethereum has no effect on the direction of Algorand i.e., Algorand and Ethereum go up and down completely randomly.

Pair Corralation between Algorand and Ethereum

Assuming the 90 days trading horizon Algorand is expected to under-perform the Ethereum. But the crypto coin apears to be less risky and, when comparing its historical volatility, Algorand is 1.07 times less risky than Ethereum. The crypto coin trades about -0.08 of its potential returns per unit of risk. The Ethereum is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  58,917  in Ethereum on September 3, 2022 and sell it today you would earn a total of  68,974  from holding Ethereum or generate 117.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy56.92%
ValuesDaily Returns

Algorand  vs.  Ethereum

 Performance (%) 
       Timeline  
Algorand 
Algorand Performance
0 of 100
Over the last 90 days Algorand has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Algorand is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Algorand Price Channel

Ethereum 
Ethereum Performance
0 of 100
Over the last 90 days Ethereum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Crypto's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Ethereum investors.

Ethereum Price Channel

Algorand and Ethereum Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Algorand and Ethereum

The main advantage of trading using opposite Algorand and Ethereum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algorand position performs unexpectedly, Ethereum 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 Ethereum will offset losses from the drop in Ethereum's long position.
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The idea behind Algorand and Ethereum 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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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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