Correlation Between Chainlink and Litecoin
Can any of the company-specific risk be diversified away by investing in both Chainlink and Litecoin 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 Chainlink and Litecoin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chainlink and Litecoin, you can compare the effects of market volatilities on Chainlink and Litecoin 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 Chainlink with a short position of Litecoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chainlink and Litecoin.
Diversification Opportunities for Chainlink and Litecoin
Modest diversification
The 3 months correlation between Chainlink and Litecoin is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Chainlink and Litecoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litecoin and Chainlink 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 Chainlink are associated (or correlated) with Litecoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litecoin has no effect on the direction of Chainlink i.e., Chainlink and Litecoin go up and down completely randomly.
Pair Corralation between Chainlink and Litecoin
Assuming the 90 days trading horizon Chainlink is expected to under-perform the Litecoin. But the crypto coin apears to be less risky and, when comparing its historical volatility, Chainlink is 1.17 times less risky than Litecoin. The crypto coin trades about -0.22 of its potential returns per unit of risk. The Litecoin is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 9,577 in Litecoin on January 25, 2024 and sell it today you would lose (1,095) from holding Litecoin or give up 11.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chainlink vs. Litecoin
Performance |
| Timeline |
| Chainlink |
| Litecoin |
Chainlink and Litecoin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chainlink and Litecoin
The main advantage of trading using opposite Chainlink and Litecoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chainlink position performs unexpectedly, Litecoin 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 Litecoin will offset losses from the drop in Litecoin's long position.The idea behind Chainlink and Litecoin 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 the Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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