Correlation Between Wrapped Bitcoin and LTO

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

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

Diversification Opportunities for Wrapped Bitcoin and LTO

0.61

Correlation Coefficient

Wrapped Bitcoin  LTO

Poor diversification

The 3 months correlation between Wrapped and LTO is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Wrapped Bitcoin and LTO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LTO and Wrapped 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 Wrapped Bitcoin are associated (or correlated) with LTO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LTO has no effect on the direction of Wrapped Bitcoin i.e., Wrapped Bitcoin and LTO go up and down completely randomly.

Pair Corralation between Wrapped Bitcoin and LTO

Assuming the 90 days trading horizon Wrapped Bitcoin is expected to generate 0.43 times more return on investment than LTO. However, Wrapped Bitcoin is 2.34 times less risky than LTO. It trades about -0.07 of its potential returns per unit of risk. LTO is currently generating about -0.25 per unit of risk. If you would invest  9,321,454  in Wrapped Bitcoin on December 30, 2024 and sell it today you would lose (1,086,636) from holding Wrapped Bitcoin or give up 11.66% of portfolio value over 90 days.

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

Wrapped Bitcoin  vs.  LTO

Wrapped Bitcoin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wrapped 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 Wrapped Bitcoin shareholders.

LTO

Risk-Adjusted Performance

Very Weak

Over the last 90 days LTO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak 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 LTO shareholders.

Pair Trading with Wrapped Bitcoin and LTO

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

The idea behind Wrapped Bitcoin and LTO 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.