Correlation Between BCD and Bitcoin

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

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

Diversification Opportunities for BCD and Bitcoin

0.84

Correlation Coefficient

BCD  Bitcoin

Very poor diversification

The 3 months correlation between BCD and Bitcoin is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding BCD and Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin and BCD 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 BCD 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 BCD i.e., BCD and Bitcoin go up and down completely randomly.

Pair Corralation between BCD and Bitcoin

Assuming the 90 days trading horizon BCD is expected to generate 3.35 times more return on investment than Bitcoin. However, BCD is 3.35 times more volatile than Bitcoin. It trades about 0.02 of its potential returns per unit of risk. Bitcoin is currently generating about -0.05 per unit of risk. If you would invest  5.79  in BCD on December 29, 2024 and sell it today you would lose (0.56) from holding BCD or give up 9.67% of portfolio value over 90 days.

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

BCD  vs.  Bitcoin

BCD

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BCD are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, BCD may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Bitcoin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bitcoin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Bitcoin shareholders.

Pair Trading with BCD and Bitcoin

The main advantage of trading using opposite BCD and Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCD 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 BCD 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.