Correlation Between XRP and Polkadot

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

Diversification Opportunities for XRP and Polkadot

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between XRP and Polkadot is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding XRP and Polkadot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polkadot and XRP 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 XRP 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 XRP i.e., XRP and Polkadot go up and down completely randomly.

Pair Corralation between XRP and Polkadot

Assuming the 90 days trading horizon XRP is expected to under-perform the Polkadot. But the crypto coin apears to be less risky and, when comparing its historical volatility, XRP is 1.39 times less risky than Polkadot. The crypto coin trades about -0.03 of its potential returns per unit of risk. The Polkadot is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,103  in Polkadot on May 14, 2022 and sell it today you would lose (180.00)  from holding Polkadot or give up 16.32% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

XRP  vs.  Polkadot

 Performance (%) 
       Timeline  
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 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 XRP investors.

XRP Price Channel

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

Polkadot Price Channel

XRP and Polkadot Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with XRP and Polkadot

The main advantage of trading using opposite XRP and Polkadot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XRP 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 XRP 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.
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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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