Correlation Between Bitcoin and ARCA Oil
Can any of the company-specific risk be diversified away by investing in both Bitcoin and ARCA Oil 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 ARCA Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitcoin and ARCA Oil, you can compare the effects of market volatilities on Bitcoin and ARCA Oil 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 ARCA Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and ARCA Oil.
Diversification Opportunities for Bitcoin and ARCA Oil
Good diversification
The 3 months correlation between Bitcoin and ARCA is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and ARCA Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Oil 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 ARCA Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Oil has no effect on the direction of Bitcoin i.e., Bitcoin and ARCA Oil go up and down completely randomly.
Pair Corralation between Bitcoin and ARCA Oil
Assuming the 90 days trading horizon Bitcoin is expected to generate 2.94 times more return on investment than ARCA Oil. However, Bitcoin is 2.94 times more volatile than ARCA Oil. It trades about 0.22 of its potential returns per unit of risk. ARCA Oil is currently generating about 0.02 per unit of risk. If you would invest 6,739,032 in Bitcoin on October 21, 2024 and sell it today you would earn a total of 3,696,668 from holding Bitcoin or generate 54.85% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 95.38% |
Values | Daily Returns |
Bitcoin vs. ARCA Oil
Performance |
Timeline |
Bitcoin and ARCA Oil Volatility Contrast
Predicted Return Density |
Returns |
Bitcoin
Pair trading matchups for Bitcoin
ARCA Oil
Pair trading matchups for ARCA Oil
Pair Trading with Bitcoin and ARCA Oil
The main advantage of trading using opposite Bitcoin and ARCA Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin position performs unexpectedly, ARCA Oil 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 ARCA Oil will offset losses from the drop in ARCA Oil's long position.The idea behind Bitcoin and ARCA Oil 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.ARCA Oil vs. Tarsus Pharmaceuticals | ||
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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