Cryptocurrency investors are increasingly turning to portfolio diversification as a way to manage volatility and optimize risk-adjusted returns. Among the most discussed digital assets in this context are Cardano (ADA.CC) and Ethereum (ETH.CC) — two major blockchain platforms that have captured significant market attention. Understanding the correlation between these two assets can provide valuable insights into portfolio construction, hedging strategies, and long-term investment planning.
This article explores the statistical relationship between Cardano and Ethereum, evaluates diversification opportunities, and analyzes risk-adjusted performance metrics over a 90-day horizon. By focusing on key financial indicators such as correlation coefficients, volatility, and return potential, we aim to help investors make more informed decisions in the dynamic crypto market.
Understanding Correlation in Cryptocurrency Investing
Correlation measures how two assets move in relation to each other. A correlation coefficient ranges from -1 to +1:
- +1 indicates perfect positive correlation (both assets move in the same direction).
- 0 means no correlation (price movements are independent).
- -1 represents perfect negative correlation (assets move in opposite directions).
In the case of Cardano and Ethereum, the 3-month correlation stands at 0.24, indicating a very weak positive relationship. This suggests that while both cryptocurrencies may respond similarly to broad market trends — such as macroeconomic shifts or regulatory news — their individual price behaviors remain largely independent.
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What Does a 0.24 Correlation Mean for Investors?
A low correlation like 0.24 implies modest diversification benefits when holding both Cardano and Ethereum together. Since they don't move in lockstep, losses in one asset may be partially offset by stability or gains in the other, especially during periods of high market volatility.
For example:
- If Ethereum experiences a sharp drop due to network congestion or gas fee spikes, Cardano might remain stable or even gain value if investors rotate capital into alternative smart contract platforms.
- Conversely, if Cardano faces development delays, Ethereum’s established ecosystem could maintain its value better.
This independence enhances portfolio resilience, particularly for traders seeking exposure to the broader smart contract sector without over-concentrating risk.
Risk and Volatility: Cardano vs. Ethereum
Volatility is a critical factor when assessing cryptocurrency investments. Higher volatility increases potential returns but also magnifies downside risk.
Over the past 90 days:
- Cardano is 1.06 times more volatile than Ethereum.
- Ethereum generates a return of approximately 0.10 per unit of volatility, whereas Cardano returns about -0.05 per unit of risk, suggesting underperformance relative to its risk level.
These figures highlight an important distinction: while both assets carry inherent crypto-market risks, Ethereum demonstrates stronger risk-adjusted performance.
Risk-Adjusted Performance Overview
| Asset | Risk-Adjusted Return Ranking | Performance Assessment |
|---|---|---|
| Cardano | Lower than 3% of global equities | Insignificant |
| Ethereum | Lower than 16% of global equities | Solid |
Despite short-term fluctuations, Ethereum has shown consistent momentum over recent months, supported by strong adoption of decentralized applications (dApps), Layer 2 scaling solutions, and ongoing protocol upgrades. Cardano, though showing promise with its research-driven approach and growing DeFi ecosystem, has yet to match Ethereum’s market responsiveness.
Diversification Opportunities
Holding both Cardano and Ethereum in a portfolio offers limited but meaningful diversification. Because their correlation is only 0.24, combining them reduces unsystematic (asset-specific) risk without significantly sacrificing sector exposure.
Consider this scenario:
- An investor allocates funds equally to ADA.CC and ETH.CC.
- A sudden regulatory announcement impacts Ethereum negatively.
- Due to lower correlation, Cardano may not react as strongly, helping cushion overall portfolio losses.
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Pair Trading Strategy: Long Cardano, Short Ethereum?
Pair trading involves taking a long position in one asset while shorting another highly correlated asset — aiming to profit from relative price movements rather than market direction.
While Cardano and Ethereum are not strongly correlated, some traders may still explore relative value strategies based on:
- Differences in network activity
- Developer engagement
- Market sentiment
- Upcoming upgrades (e.g., Ethereum’s EIPs vs. Cardano’s Hydra scaling)
However, given the weak correlation, such strategies carry higher uncertainty. A true market-neutral pair trade typically requires a correlation above 0.7. Therefore, while speculative opportunities exist, they should be approached with caution and robust risk management.
Frequently Asked Questions (FAQ)
What does a correlation of 0.24 between Cardano and Ethereum mean?
A correlation of 0.24 indicates a very weak positive relationship. The two assets tend to move in the same direction slightly more often than not, but their price movements are mostly independent.
Can I diversify risk by investing in both Cardano and Ethereum?
Yes, but only modestly. Due to low correlation, holding both assets can reduce unsystematic risk, though they are still subject to similar macro-level crypto market forces.
Which cryptocurrency has better risk-adjusted returns?
Ethereum currently shows stronger risk-adjusted performance compared to Cardano, ranking higher relative to global equities over the last 90 days.
Is pair trading viable with Cardano and Ethereum?
Not ideally. Pair trading works best with highly correlated assets. With a correlation of just 0.24, the effectiveness of a neutral strategy is limited.
How volatile is Cardano compared to Ethereum?
Cardano is 1.06 times more volatile than Ethereum, meaning it experiences slightly larger price swings for the same market conditions.
Should I invest in Cardano or Ethereum in 2025?
Ethereum appears better positioned due to stronger fundamentals, ecosystem maturity, and consistent risk-adjusted returns. However, Cardano may offer upside potential if its scaling roadmap accelerates adoption.
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Final Thoughts
While Cardano and Ethereum share similarities as smart contract platforms, their market behaviors diverge significantly. The current correlation of 0.24 reflects minimal co-movement, offering slight diversification advantages for portfolio holders.
For investors focused on risk-adjusted returns, Ethereum remains the more reliable choice, backed by stronger ecosystem fundamentals and better performance metrics. Cardano, while promising, continues to face challenges in translating technological potential into market momentum.
As the blockchain landscape evolves through 2025, monitoring cross-asset correlations will become increasingly vital for strategic allocation. Whether you're building a balanced portfolio or exploring advanced trading techniques, understanding the dynamics between major cryptos like ADA.CC and ETH.CC is essential for long-term success.
Note: All data referenced pertains to a 90-day trading horizon ending in April 2025.