Correlation Between Bitcoin and ETN
Can any of the company-specific risk be diversified away by investing in both Bitcoin and ETN 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 Bitcoin and ETN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitcoin and ETN, you can compare the effects of market volatilities on Bitcoin and ETN 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 Bitcoin with a short position of ETN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and ETN.
Diversification Opportunities for Bitcoin and ETN
Significant diversification
The 3 months correlation between Bitcoin and ETN is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and ETN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETN and 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 Bitcoin are associated (or correlated) with ETN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETN has no effect on the direction of Bitcoin i.e., Bitcoin and ETN go up and down completely randomly.
Pair Corralation between Bitcoin and ETN
Assuming the 90 days trading horizon Bitcoin is expected to generate 0.85 times more return on investment than ETN. However, Bitcoin is 1.17 times less risky than ETN. It trades about 0.1 of its potential returns per unit of risk. ETN is currently generating about 0.05 per unit of risk. If you would invest 1,712,919 in Bitcoin on August 30, 2024 and sell it today you would earn a total of 7,916,110 from holding Bitcoin or generate 462.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bitcoin vs. ETN
Performance |
| Timeline |
| Bitcoin |
| ETN |
Bitcoin and ETN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bitcoin and ETN
The main advantage of trading using opposite Bitcoin and ETN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin position performs unexpectedly, ETN 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 ETN will offset losses from the drop in ETN's long position.The idea behind Bitcoin and ETN 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.Check out your portfolio center.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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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