Cryptocurrency investors are increasingly turning to portfolio diversification as a strategy to manage risk in volatile digital asset markets. Among the most discussed pairings is Cardano (ADA.CC) and Ethereum (ETH.CC)—two leading smart contract platforms with distinct technological approaches and market behaviors. Understanding the correlation between these assets can help investors assess diversification potential, optimize risk-adjusted returns, and explore advanced strategies like pair trading.
This article dives into the statistical relationship between Cardano and Ethereum, evaluates their volatility profiles, and explores how combining them in a portfolio may influence overall performance.
Understanding Cryptocurrency Correlation
Correlation measures how two assets move in relation to each other, with values ranging from -1 to +1:
- +1: Perfect positive correlation (move in lockstep)
- 0: No correlation (independent movement)
- -1: Perfect negative correlation (move in opposite directions)
In crypto investing, a lower correlation between two assets suggests greater diversification benefits. When one asset declines, the other may remain stable or even rise, helping to smooth portfolio returns.
👉 Discover how market correlations can boost your investment strategy today.
Diversification Potential: Cardano vs. Ethereum
Over the past three months, the correlation coefficient between Cardano and Ethereum stands at 0.24, indicating a very weak positive correlation. This means that while both cryptocurrencies may respond similarly to broad market trends—such as macroeconomic shifts or regulatory news—their price movements are not tightly linked.
What Does a 0.24 Correlation Mean?
A correlation of 0.24 suggests only modest co-movement. For investors, this presents a meaningful opportunity to reduce unsystematic (asset-specific) risk by holding both assets in a portfolio. The overlapping area in return distributions represents the amount of risk that can be diversified away—small but not negligible.
While systemic risks (like global liquidity changes or crypto-wide sell-offs) still affect both, their differing development timelines, consensus mechanisms, and adoption curves allow for some independence in performance.
Volatility and Risk-Adjusted Performance
Cardano: Higher Volatility, Lower Risk-Adjusted Returns
Cardano has shown 1.06 times higher volatility than Ethereum over a 90-day horizon. This increased price fluctuation comes with a trade-off: lower efficiency in generating returns per unit of risk.
Currently, Cardano delivers approximately -0.05 return per unit of volatility, suggesting that, on average, investors are not being adequately compensated for the risk taken. Over the same period, Cardano’s risk-adjusted performance ranks below 97% of global equities and portfolios—placing it in the “insignificant” category.
Despite this, technical indicators suggest Cardano may be nearing a reversion point—potentially setting up for upward momentum in mid-2025 if key network upgrades drive renewed investor interest.
Ethereum: Stable Risk-Adjusted Outcomes
Ethereum demonstrates stronger risk-adjusted performance, delivering about 0.10 return per unit of volatility—double that of Cardano. Its risk-adjusted returns rank better than 84% of all global equity instruments over the last 90 days, earning it a “solid” classification.
For example, an investment of $241,585 in Ethereum on April 5, 2025**, would have generated a return of **$17,716 (7.33%) over 90 days. This reflects consistent demand driven by Ethereum’s dominant position in decentralized finance (DeFi), NFTs, and institutional adoption following its successful protocol upgrades.
Pair Trading Strategy: Balancing Long and Short Positions
Pair trading involves taking a long position in one asset while simultaneously going short on another highly correlated asset, aiming to profit from relative price movements while remaining neutral to broader market swings.
Given the weak correlation (0.24), Cardano and Ethereum may not be ideal candidates for traditional pair trading—which typically requires correlations above 0.7. However, short-term traders might still exploit temporary divergences caused by:
- Protocol-specific announcements (e.g., hard forks or upgrades)
- Differences in staking yields
- Market sentiment shifts toward proof-of-stake platforms
For instance, if Ethereum experiences regulatory scrutiny while Cardano launches a major decentralized application (dApp), traders could go long on ADA.CC and short ETH.CC—profiting from the relative outperformance.
👉 Learn how to execute precision trades using real-time market data.
Market Neutrality and Risk Mitigation
The core idea behind pairing Cardano and Ethereum is to hedge against directional market risk. If a macro shock causes the entire crypto market to drop, losses in a long Cardano position could be offset by gains from a short Ethereum position—assuming Ethereum falls more sharply.
While complete market neutrality is difficult to achieve due to differing fundamentals and investor bases, such strategies can reduce exposure to sudden sector-wide downturns.
Complementary Investment Tools
To enhance decision-making, investors should leverage analytical tools beyond simple correlation metrics:
- Volatility Indicators: Monitor historical and implied volatility trends for both ADA.CC and ETH.CC.
- Portfolio Optimization Engines: Use algorithms to determine optimal allocation weights based on expected returns, variance, and covariance.
- Watchlist Analyzers: Track behavioral patterns in your preferred assets using self-learning models.
- Economic Indicators: Stay informed on inflation rates, interest rate decisions, and on-chain activity that influence crypto valuations.
These tools help build resilient portfolios by integrating quantitative analysis with strategic foresight.
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Frequently Asked Questions (FAQ)
Q: Can I diversify my crypto portfolio using Cardano and Ethereum together?
A: Yes. With a correlation of only 0.24, combining ADA.CC and ETH.CC offers modest diversification benefits by reducing asset-specific risk.
Q: Which cryptocurrency has better risk-adjusted returns?
A: Ethereum currently outperforms Cardano in risk-adjusted terms, delivering 0.10 return per unit of volatility compared to Cardano’s -0.05.
Q: Is pair trading viable with Cardano and Ethereum?
A: While possible during periods of temporary divergence, their low correlation makes them less ideal for classic pair trading strategies that require high co-movement.
Q: How does volatility impact investment decisions between ADA.CC and ETH.CC?
A: Cardano’s higher volatility implies greater risk and potential reward, but also less predictable returns. Conservative investors may prefer Ethereum’s more stable profile.
Q: What factors influence the correlation between these two blockchains?
A: Common drivers include overall crypto market sentiment, regulatory developments, and macroeconomic conditions. However, platform-specific events—like network upgrades or ecosystem growth—can decouple their price action.
Q: Are correlations between cryptocurrencies stable over time?
A: No. Crypto correlations can shift rapidly due to technological breakthroughs, market cycles, or external shocks. Regular re-evaluation is essential.
Core Keywords: Cardano, Ethereum, correlation, cryptocurrency, diversification, risk-adjusted returns, volatility, pair trading