Correlation Between Ethereum and Wrapped Bitcoin

Can any of the company-specific risk be diversified away by investing in both Ethereum and Wrapped Bitcoin 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 Ethereum and Wrapped Bitcoin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ethereum and Wrapped Bitcoin, you can compare the effects of market volatilities on Ethereum and Wrapped Bitcoin 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 Ethereum with a short position of Wrapped Bitcoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethereum and Wrapped Bitcoin.

Diversification Opportunities for Ethereum and Wrapped Bitcoin

0.91

Correlation Coefficient

Ethereum  Wrapped Bitcoin

Almost no diversification

The 3 months correlation between Ethereum and Wrapped is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and Wrapped Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wrapped Bitcoin and Ethereum 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 Ethereum are associated (or correlated) with Wrapped Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wrapped Bitcoin has no effect on the direction of Ethereum i.e., Ethereum and Wrapped Bitcoin go up and down completely randomly.

Pair Corralation between Ethereum and Wrapped Bitcoin

Assuming the 90 days trading horizon Ethereum is expected to under-perform the Wrapped Bitcoin. In addition to that, Ethereum is 1.64 times more volatile than Wrapped Bitcoin. It trades about -0.22 of its total potential returns per unit of risk. Wrapped Bitcoin is currently generating about -0.07 per unit of volatility. If you would invest  9,494,650  in Wrapped Bitcoin on January 7, 2025 and sell it today you would lose (1,151,828) from holding Wrapped Bitcoin or give up 12.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Ethereum  vs.  Wrapped Bitcoin

Ethereum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ethereum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's technical indicators remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for Ethereum shareholders.

Wrapped Bitcoin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wrapped Bitcoin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Wrapped Bitcoin shareholders.

Pair Trading with Ethereum and Wrapped Bitcoin

The main advantage of trading using opposite Ethereum and Wrapped Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethereum position performs unexpectedly, Wrapped Bitcoin 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 Wrapped Bitcoin will offset losses from the drop in Wrapped Bitcoin's long position.

The idea behind Ethereum and Wrapped Bitcoin 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.