Correlation Between Terra and BTS

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

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

Diversification Opportunities for Terra and BTS

0.85

Correlation Coefficient

Terra  BTS

Very poor diversification

The 3 months correlation between Terra and BTS is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Terra and BTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTS and Terra 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 Terra are associated (or correlated) with BTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTS has no effect on the direction of Terra i.e., Terra and BTS go up and down completely randomly.

Pair Corralation between Terra and BTS

Assuming the 90 days trading horizon Terra is expected to generate 4.07 times less return on investment than BTS. But when comparing it to its historical volatility, Terra is 2.38 times less risky than BTS. It trades about 0.02 of its potential returns per unit of risk. BTS is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.18  in BTS on September 25, 2024 and sell it today you would lose (0.04) from holding BTS or give up 19.75% of portfolio value over 90 days.

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

Terra  vs.  BTS

Terra

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Terra are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Terra exhibited solid returns over the last few months and may actually be approaching a breakup point.

BTS

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BTS are ranked lower than 3 (%) 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.

Pair Trading with Terra and BTS

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

The idea behind Terra and BTS 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.