Correlation Between AE and Bitcoin
Can any of the company-specific risk be diversified away by investing in both AE 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 AE and Bitcoin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AE and Bitcoin, you can compare the effects of market volatilities on AE 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 AE with a short position of Bitcoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of AE and Bitcoin.
Diversification Opportunities for AE and Bitcoin
Poor diversification
The 3 months correlation between AE and Bitcoin is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding AE and Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin and AE 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 AE 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 AE i.e., AE and Bitcoin go up and down completely randomly.
Pair Corralation between AE and Bitcoin
Assuming the 90 days horizon AE is expected to under-perform the Bitcoin. In addition to that, AE is 2.18 times more volatile than Bitcoin. It trades about -0.13 of its total potential returns per unit of risk. Bitcoin is currently generating about -0.03 per unit of volatility. If you would invest 9,339,198 in Bitcoin on December 28, 2024 and sell it today you would lose (619,502) from holding Bitcoin or give up 6.63% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
AE vs. Bitcoin
Performance |
Timeline |
AE |
Bitcoin |
AE and Bitcoin Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with AE and Bitcoin
The main advantage of trading using opposite AE and Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AE 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 AE 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.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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
Other Complementary Tools
Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance |