Correlation Between BTS and Stacks

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

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

Diversification Opportunities for BTS and Stacks

0.78

Correlation Coefficient

BTS  Stacks

Poor diversification

The 3 months correlation between BTS and Stacks is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding BTS and Stacks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stacks 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 Stacks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stacks has no effect on the direction of BTS i.e., BTS and Stacks go up and down completely randomly.

Pair Corralation between BTS and Stacks

Assuming the 90 days trading horizon BTS is expected to generate 1.16 times more return on investment than Stacks. However, BTS is 1.16 times more volatile than Stacks. It trades about -0.04 of its potential returns per unit of risk. Stacks is currently generating about -0.19 per unit of risk. If you would invest  0.19  in BTS on December 29, 2024 and sell it today you would lose (0.05) from holding BTS or give up 27.78% of portfolio value over 90 days.

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

BTS  vs.  Stacks

BTS

Risk-Adjusted Performance

Very Weak

Over the last 90 days BTS 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 BTS shareholders.

Stacks

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stacks 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 Stacks shareholders.

Pair Trading with BTS and Stacks

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

The idea behind BTS and Stacks 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.