Correlation Between IShares Bitcoin and Financial Select

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

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

Diversification Opportunities for IShares Bitcoin and Financial Select

0.94

Correlation Coefficient

IShares Bitcoin  Financial Select

Almost no diversification

The 3 months correlation between IShares and Financial is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares Bitcoin Trust and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and IShares 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 iShares Bitcoin Trust are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of IShares Bitcoin i.e., IShares Bitcoin and Financial Select go up and down completely randomly.

Pair Corralation between IShares Bitcoin and Financial Select

Given the investment horizon of 90 days iShares Bitcoin Trust is expected to generate 3.12 times more return on investment than Financial Select. However, IShares Bitcoin is 3.12 times more volatile than Financial Select Sector. It trades about 0.28 of its potential returns per unit of risk. Financial Select Sector is currently generating about 0.15 per unit of risk. If you would invest  3,298  in iShares Bitcoin Trust on September 16, 2024 and sell it today you would earn a total of  2,493  from holding iShares Bitcoin Trust or generate 75.59% return on investment over 90 days.

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

iShares Bitcoin Trust  vs.  Financial Select Sector

iShares Bitcoin Trust

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Bitcoin Trust are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward indicators, IShares Bitcoin unveiled solid returns over the last few months and may actually be approaching a breakup point.

Financial Select Sector

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Bitcoin and Financial Select

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

The idea behind iShares Bitcoin Trust and Financial Select Sector 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.