Correlation Between Core and Bitcoin

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

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

Diversification Opportunities for Core and Bitcoin

0.42

Correlation Coefficient

Core  Bitcoin

Very weak diversification

The 3 months correlation between Core and Bitcoin is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Core and Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin and Core 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 Core are associated (or correlated) with Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bitcoin has no effect on the direction of Core i.e., Core and Bitcoin go up and down completely randomly.

Pair Corralation between Core and Bitcoin

Assuming the 90 days trading horizon Core is expected to generate 2.35 times more return on investment than Bitcoin. However, Core is 2.35 times more volatile than Bitcoin. It trades about 0.19 of its potential returns per unit of risk. Bitcoin is currently generating about 0.25 per unit of risk. If you would invest  88.00  in Core on September 3, 2024 and sell it today you would earn a total of  109.00  from holding Core or generate 123.86% return on investment over 90 days.

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

Core  vs.  Bitcoin

Core

Risk-Adjusted Performance

15 of 100

Good

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

Bitcoin

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 19 (%) 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.

Pair Trading with Core and Bitcoin

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

The idea behind Core and 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.