Correlation Between Bitcoin and PHB

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

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

Diversification Opportunities for Bitcoin and PHB

0.57

Correlation Coefficient

Bitcoin  PHB

Very weak diversification

The 3 months correlation between Bitcoin and PHB is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and PHB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHB and Bitcoin 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 Bitcoin are associated (or correlated) with PHB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHB has no effect on the direction of Bitcoin i.e., Bitcoin and PHB go up and down completely randomly.

Pair Corralation between Bitcoin and PHB

Assuming the 90 days trading horizon Bitcoin is expected to generate 1.53 times less return on investment than PHB. But when comparing it to its historical volatility, Bitcoin is 1.99 times less risky than PHB. It trades about 0.26 of its potential returns per unit of risk. PHB is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  115.00  in PHB on September 1, 2024 and sell it today you would earn a total of  120.00  from holding PHB or generate 104.35% return on investment over 90 days.

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

Bitcoin  vs.  PHB

Bitcoin

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

PHB

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PHB are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, PHB exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bitcoin and PHB

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

The idea behind Bitcoin and PHB 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.