Correlation Between Dogecoin and Ethereum

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

Diversification Opportunities for Dogecoin and Ethereum

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Dogecoin and Ethereum is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Dogecoin and Ethereum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethereum and Dogecoin 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 Dogecoin 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 Dogecoin i.e., Dogecoin and Ethereum go up and down completely randomly.

Pair Corralation between Dogecoin and Ethereum

Assuming the 90 days trading horizon Dogecoin is expected to under-perform the Ethereum. In addition to that, Dogecoin is 1.15 times more volatile than Ethereum. It trades about -0.06 of its total potential returns per unit of risk. Ethereum is currently generating about -0.04 per unit of volatility. If you would invest  406,276  in Ethereum on May 18, 2022 and sell it today you would lose (207,847)  from holding Ethereum or give up 51.16% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Dogecoin  vs.  Ethereum

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

Dogecoin Price Channel

Ethereum 
Ethereum Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ethereum may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Ethereum Price Channel

Dogecoin and Ethereum Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dogecoin and Ethereum

The main advantage of trading using opposite Dogecoin and Ethereum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dogecoin 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.
The idea behind Dogecoin 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.
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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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