Correlation Between First Trust and Grayscale Bitcoin

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

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

Diversification Opportunities for First Trust and Grayscale Bitcoin

0.43

Correlation Coefficient

First Trust  Grayscale Bitcoin

Very weak diversification

The 3 months correlation between First and Grayscale is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Grayscale Bitcoin Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grayscale Bitcoin Trust and First Trust 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 First Trust Indxx are associated (or correlated) with Grayscale Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grayscale Bitcoin Trust has no effect on the direction of First Trust i.e., First Trust and Grayscale Bitcoin go up and down completely randomly.

Pair Corralation between First Trust and Grayscale Bitcoin

Given the investment horizon of 90 days First Trust is expected to generate 8.07 times less return on investment than Grayscale Bitcoin. But when comparing it to its historical volatility, First Trust Indxx is 4.11 times less risky than Grayscale Bitcoin. It trades about 0.13 of its potential returns per unit of risk. Grayscale Bitcoin Trust is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  4,764  in Grayscale Bitcoin Trust on September 13, 2024 and sell it today you would earn a total of  3,287  from holding Grayscale Bitcoin Trust or generate 69.0% return on investment over 90 days.

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

First Trust Indxx  vs.  Grayscale Bitcoin Trust

First Trust Indxx

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Grayscale Bitcoin Trust

Risk-Adjusted Performance

20 of 100

Solid

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

Pair Trading with First Trust and Grayscale Bitcoin

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

The idea behind First Trust Indxx and Grayscale Bitcoin Trust 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..