Correlation Between BTS and BTT

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

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

Diversification Opportunities for BTS and BTT

0.64

Correlation Coefficient

BTS  BTT

Poor diversification

The 3 months correlation between BTS and BTT is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding BTS and BTT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTT and BTS 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 BTS are associated (or correlated) with BTT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTT has no effect on the direction of BTS i.e., BTS and BTT go up and down completely randomly.

Pair Corralation between BTS and BTT

Assuming the 90 days trading horizon BTS is expected to generate 2.11 times more return on investment than BTT. However, BTS is 2.11 times more volatile than BTT. It trades about 0.02 of its potential returns per unit of risk. BTT is currently generating about -0.12 per unit of risk. If you would invest  0.19  in BTS on December 1, 2024 and sell it today you would lose (0.06) from holding BTS or give up 30.02% of portfolio value over 90 days.

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

BTS  vs.  BTT

BTS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BTS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BTS exhibited solid returns over the last few months and may actually be approaching a breakup point.

BTT

Risk-Adjusted Performance

Very Weak

Over the last 90 days BTT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for BTT shareholders.

Pair Trading with BTS and BTT

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

The idea behind BTS and BTT 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 Stocks Directory module to find actively traded stocks across global markets.