Correlation Between Compound Governance and XRP

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

Diversification Opportunities for Compound Governance and XRP

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Compound and XRP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Compound Governance Token and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP and Compound Governance 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 Compound Governance Token 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 Compound Governance i.e., Compound Governance and XRP go up and down completely randomly.

Pair Corralation between Compound Governance and XRP

Assuming the 90 days trading horizon Compound Governance is expected to generate 1.16 times less return on investment than XRP. In addition to that, Compound Governance is 2.17 times more volatile than XRP. It trades about 0.01 of its total potential returns per unit of risk. XRP is currently generating about 0.01 per unit of volatility. If you would invest  37.00  in XRP on May 19, 2022 and sell it today you would earn a total of  0.00  from holding XRP or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Compound Governance Token  vs.  XRP

 Performance (%) 
       Timeline  
Compound Governance Token 
Compound Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Compound Governance Token are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Compound Governance sustained solid returns over the last few months and may actually be approaching a breakup point.

Compound Price Channel

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 strong basic indicators, XRP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

XRP Price Channel

Compound Governance and XRP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Compound Governance and XRP

The main advantage of trading using opposite Compound Governance and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compound Governance 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 Compound Governance Token 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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