Cryptocurrency investors are increasingly turning to data-driven strategies to optimize portfolio performance, especially in volatile digital asset markets. Understanding the correlation between two prominent blockchain-based assets—Ethereum Classic (ETC) and Ethereum (ETH)—can provide valuable insights into diversification, risk management, and potential arbitrage opportunities. This article explores the statistical relationship between Ethereum Classic and Ethereum, evaluates their risk-adjusted returns, and discusses practical trading strategies such as pair trading to enhance investment outcomes.
Understanding Cryptocurrency Correlation
Correlation in finance measures how two assets move in relation to each other, with values ranging from -1 to +1. A correlation of +1 indicates that both assets move in perfect unison, while -1 means they move in opposite directions. A value near zero suggests no meaningful relationship.
In the case of Ethereum Classic and Ethereum, the 90-day correlation coefficient stands at 0.68, indicating a significant positive correlation. This means that over the past three months, both cryptocurrencies have tended to move in the same direction more often than not. While this level of correlation suggests shared market influences—such as broader crypto market trends, regulatory news, or macroeconomic factors—it also implies limited diversification benefits when holding both assets simultaneously.
👉 Discover how market correlations can shape your next crypto move.
Diversification: Is There Value in Holding Both?
Diversification aims to reduce unsystematic (asset-specific) risk by combining non-perfectly correlated assets. However, with a correlation of 0.68, Ethereum Classic and Ethereum offer poor diversification potential when combined in the same portfolio.
The overlapping price movements mean that if the broader cryptocurrency market declines, both ETC and ETH are likely to fall together, limiting downside protection. That said, they are not perfectly correlated, so slight deviations in performance can still create opportunities for strategic allocation.
For instance:
- Ethereum (ETH) has shown stronger returns over the 90-day horizon.
- An investment of $147,215 in Ethereum on April 5, 2025, would have generated a return of **$112,086, or 76.14%**, over three months.
- In contrast, Ethereum Classic delivered lower returns but exhibited 1.27 times less volatility than Ethereum.
This trade-off between return and risk highlights a key principle in portfolio management: higher returns often come with higher risk. Ethereum Classic may appeal to more risk-averse investors seeking exposure to the Ethereum ecosystem without the extreme volatility of ETH.
Risk-Adjusted Performance Comparison
Evaluating performance solely on returns can be misleading. A more insightful approach involves assessing risk-adjusted returns, which measure how much return an asset generates per unit of risk taken.
- Ethereum Classic: Generates approximately 0.10 units of return per unit of risk.
- Ethereum: Delivers about 0.21 units of return per unit of risk over the same period.
This indicates that Ethereum offers significantly better efficiency in converting risk into reward. Furthermore:
- Ethereum Classic’s risk-adjusted returns rank lower than 93% of global equities and portfolios.
- Ethereum ranks higher, outperforming 84% of global equities and portfolios in risk-adjusted terms.
Despite Ethereum Classic’s relatively stable price action, its low return efficiency suggests it may not be the optimal standalone investment unless used strategically within a hedging or pair trading framework.
Pair Trading Strategy: Leveraging Market Neutrality
One of the most effective ways to capitalize on the correlation between Ethereum Classic and Ethereum is through pair trading—a market-neutral strategy that involves taking a long position in one asset while shorting another highly correlated asset.
How It Works:
- Identify a deviation in the historical price ratio between ETC and ETH.
- Go long on the underperforming asset and short the outperforming one.
- Profit when the price spread reverts to its historical average.
For example:
- If Ethereum Classic is underperforming relative to Ethereum due to temporary sentiment shifts, a trader might buy ETC and short ETH.
- When the prices converge again, both positions can be closed for a profit—regardless of whether the overall market went up or down.
This strategy hedges against systemic market risk, such as a broad crypto sell-off triggered by regulatory news. Even if both assets drop, gains from the short position can offset losses from the long side.
👉 Explore advanced trading tools that support pair strategies across digital assets.
Volatility Contrast and Investment Implications
Volatility is a double-edged sword—it creates risk but also opportunity. Over the past 90 days:
- Ethereum Classic has been less volatile, making it potentially suitable for conservative traders.
- Ethereum, while more volatile, has delivered substantially higher returns, appealing to aggressive investors.
The lower volatility of ETC may stem from its smaller market cap, reduced liquidity, and less media attention compared to ETH. However, this also means fewer trading opportunities and slower price reactions to market developments.
Investors should consider these dynamics when allocating capital:
- Use Ethereum for growth-oriented exposure.
- Use Ethereum Classic as a lower-beta alternative or as part of a hedging strategy.
Frequently Asked Questions (FAQ)
What does a 0.68 correlation between ETC and ETH mean?
A correlation of 0.68 indicates a strong tendency for both cryptocurrencies to move in the same direction. However, since it's not perfect (1.0), there are still occasional divergences that traders can exploit.
Can I diversify risk by investing in both Ethereum and Ethereum Classic?
Due to their high correlation, combining ETC and ETH offers limited diversification benefits. They tend to react similarly to market events, so holding both won't significantly reduce portfolio risk.
Is pair trading between ETC and ETH profitable?
Yes, if executed correctly. Pair trading profits from relative price movements rather than market direction. It works best when historical correlations remain stable and temporary price imbalances occur.
Which is riskier: Ethereum or Ethereum Classic?
Ethereum is more volatile and thus riskier in terms of price swings. However, it also offers higher risk-adjusted returns, making it more efficient for investors seeking growth.
How do I start pair trading crypto assets?
Begin by analyzing historical price ratios and correlation stability. Use platforms that support spot and futures trading to execute long-short positions. Always apply proper risk management techniques like stop-loss orders.
Does lower volatility mean Ethereum Classic is safer?
Lower volatility suggests more predictable price behavior, but "safer" depends on your goals. ETC may be less risky in terms of drawdowns, but it also offers lower return potential compared to ETH.
👉 Start building intelligent crypto strategies with real-time analytics today.
Final Thoughts
While Ethereum Classic and Ethereum share a common origin, their market behaviors have diverged over time. Their current correlation of 0.68 reflects shared influences but also leaves room for strategic differentiation.
For portfolio managers and active traders, this relationship presents opportunities—not for diversification, but for market-neutral strategies like pair trading. By leveraging volatility differences and temporary mispricings, investors can generate returns independent of broader market trends.
Ultimately, understanding the interplay between these two assets empowers smarter decision-making in an increasingly complex crypto landscape.
Core Keywords: Ethereum Classic, Ethereum, correlation, pair trading, risk-adjusted returns, cryptocurrency diversification, market volatility, crypto investment strategy