Correlation Between Wrapped Bitcoin and XIN

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

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

Diversification Opportunities for Wrapped Bitcoin and XIN

0.68

Correlation Coefficient

Wrapped Bitcoin  XIN

Poor diversification

The 3 months correlation between Wrapped and XIN is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wrapped Bitcoin and XIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XIN 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 XIN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XIN has no effect on the direction of Wrapped Bitcoin i.e., Wrapped Bitcoin and XIN go up and down completely randomly.

Pair Corralation between Wrapped Bitcoin and XIN

Assuming the 90 days trading horizon Wrapped Bitcoin is expected to generate 0.72 times more return on investment than XIN. However, Wrapped Bitcoin is 1.39 times less risky than XIN. It trades about 0.24 of its potential returns per unit of risk. XIN is currently generating about 0.11 per unit of risk. If you would invest  5,892,428  in Wrapped Bitcoin on August 30, 2024 and sell it today you would earn a total of  3,687,230  from holding Wrapped Bitcoin or generate 62.58% return on investment over 90 days.

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

Wrapped Bitcoin  vs.  XIN

Wrapped Bitcoin

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wrapped Bitcoin are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Wrapped Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

XIN

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XIN are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XIN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wrapped Bitcoin and XIN

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

The idea behind Wrapped Bitcoin and XIN 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.