Correlation Between Stacks and BTS

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

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

Diversification Opportunities for Stacks and BTS

0.78

Correlation Coefficient

Stacks  BTS

Poor diversification

The 3 months correlation between Stacks and BTS is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Stacks and BTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTS and Stacks 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 Stacks 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 Stacks i.e., Stacks and BTS go up and down completely randomly.

Pair Corralation between Stacks and BTS

Assuming the 90 days trading horizon Stacks is expected to under-perform the BTS. But the crypto coin apears to be less risky and, when comparing its historical volatility, Stacks is 1.16 times less risky than BTS. The crypto coin trades about -0.19 of its potential returns per unit of risk. The BTS is currently generating about -0.04 of returns per unit of risk over similar time horizon. 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

Stacks  vs.  BTS

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.

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.

Pair Trading with Stacks and BTS

The main advantage of trading using opposite Stacks and BTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stacks 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 Stacks 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.