Correlation Between Bitcoin and ASX Limited

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

By analyzing existing cross correlation between Bitcoin and ASX Limited ADR, you can compare the effects of market volatilities on Bitcoin and ASX Limited 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 ASX Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and ASX Limited.

Diversification Opportunities for Bitcoin and ASX Limited

-0.49

Correlation Coefficient

Bitcoin  ASX Limited

Very good diversification

The 3 months correlation between Bitcoin and ASX is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and ASX Limited ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASX Limited ADR 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 ASX Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASX Limited ADR has no effect on the direction of Bitcoin i.e., Bitcoin and ASX Limited go up and down completely randomly.

Pair Corralation between Bitcoin and ASX Limited

Assuming the 90 days trading horizon Bitcoin is expected to generate 2.03 times more return on investment than ASX Limited. However, Bitcoin is 2.03 times more volatile than ASX Limited ADR. It trades about 0.23 of its potential returns per unit of risk. ASX Limited ADR is currently generating about -0.07 per unit of risk. If you would invest  6,251,742  in Bitcoin on October 10, 2024 and sell it today you would earn a total of  3,448,595  from holding Bitcoin or generate 55.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Bitcoin  vs.  ASX Limited ADR

Bitcoin

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 17 (%) 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.

ASX Limited ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASX Limited ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bitcoin and ASX Limited

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

The idea behind Bitcoin and ASX Limited ADR 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.