Correlation Between CLO and Bitcoin

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

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

Diversification Opportunities for CLO and Bitcoin

0.14

Correlation Coefficient

CLO  Bitcoin

Average diversification

The 3 months correlation between CLO and Bitcoin is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding CLO and Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin and CLO 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 CLO 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 CLO i.e., CLO and Bitcoin go up and down completely randomly.

Pair Corralation between CLO and Bitcoin

Assuming the 90 days trading horizon CLO is expected to generate 90.06 times more return on investment than Bitcoin. However, CLO is 90.06 times more volatile than Bitcoin. It trades about 0.31 of its potential returns per unit of risk. Bitcoin is currently generating about -0.07 per unit of risk. If you would invest  0.07  in CLO on December 30, 2024 and sell it today you would lose (0.06) from holding CLO or give up 87.16% of portfolio value over 90 days.

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

CLO  vs.  Bitcoin

CLO

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CLO are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CLO exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 CLO and Bitcoin

The main advantage of trading using opposite CLO and Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CLO 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 CLO 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.