Correlation Between BTM and Dash
Can any of the company-specific risk be diversified away by investing in both BTM and Dash 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 BTM and Dash into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BTM and Dash, you can compare the effects of market volatilities on BTM and Dash 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 BTM with a short position of Dash. Check out your portfolio center. Please also check ongoing floating volatility patterns of BTM and Dash.
Diversification Opportunities for BTM and Dash
Very poor diversification
The 3 months correlation between BTM and Dash is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BTM and Dash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dash and BTM 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 BTM are associated (or correlated) with Dash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dash has no effect on the direction of BTM i.e., BTM and Dash go up and down completely randomly.
Pair Corralation between BTM and Dash
Assuming the 90 days trading horizon BTM is expected to under-perform the Dash. In addition to that, BTM is 1.23 times more volatile than Dash. It trades about -0.04 of its total potential returns per unit of risk. Dash is currently generating about -0.04 per unit of volatility. If you would invest 7,405 in Dash on January 24, 2024 and sell it today you would lose (4,289) from holding Dash or give up 57.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BTM vs. Dash
Performance |
| Timeline |
| BTM |
| Dash |
BTM and Dash Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BTM and Dash
The main advantage of trading using opposite BTM and Dash positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BTM position performs unexpectedly, Dash 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 Dash will offset losses from the drop in Dash's long position.The idea behind BTM and Dash 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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