Correlation Between Bitcoin and Monero
Can any of the company-specific risk be diversified away by investing in both Bitcoin and Monero 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 Monero into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitcoin and Monero, you can compare the effects of market volatilities on Bitcoin and Monero 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 Monero. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and Monero.
Diversification Opportunities for Bitcoin and Monero
Poor diversification
The 3 months correlation between Bitcoin and Monero is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and Monero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monero 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 Monero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monero has no effect on the direction of Bitcoin i.e., Bitcoin and Monero go up and down completely randomly.
Pair Corralation between Bitcoin and Monero
Assuming the 90 days trading horizon Bitcoin is expected to generate 3.72 times less return on investment than Monero. But when comparing it to its historical volatility, Bitcoin is 1.39 times less risky than Monero. It trades about 0.1 of its potential returns per unit of risk. Monero is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 19,073 in Monero on October 25, 2024 and sell it today you would earn a total of 3,396 from holding Monero or generate 17.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bitcoin vs. Monero
Performance |
| Timeline |
| Bitcoin |
| Monero |
Bitcoin and Monero Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bitcoin and Monero
The main advantage of trading using opposite Bitcoin and Monero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin position performs unexpectedly, Monero 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 Monero will offset losses from the drop in Monero's long position.The idea behind Bitcoin and Monero 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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