Correlation Between BTM and True USD
Can any of the company-specific risk be diversified away by investing in both BTM and True USD 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 True USD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BTM and True USD, you can compare the effects of market volatilities on BTM and True USD 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 True USD. Check out your portfolio center. Please also check ongoing floating volatility patterns of BTM and True USD.
Diversification Opportunities for BTM and True USD
Very weak diversification
The 3 months correlation between BTM and True is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding BTM and True USD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on True USD 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 True USD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of True USD has no effect on the direction of BTM i.e., BTM and True USD go up and down completely randomly.
Pair Corralation between BTM and True USD
Assuming the 90 days trading horizon BTM is expected to generate 8.77 times more return on investment than True USD. However, BTM is 8.77 times more volatile than True USD. It trades about 0.03 of its potential returns per unit of risk. True USD is currently generating about 0.0 per unit of risk. If you would invest 0.93 in BTM on January 17, 2024 and sell it today you would earn a total of 0.01 from holding BTM or generate 0.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BTM vs. True USD
Performance |
| Timeline |
| BTM |
| True USD |
BTM and True USD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BTM and True USD
The main advantage of trading using opposite BTM and True USD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BTM position performs unexpectedly, True USD 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 True USD will offset losses from the drop in True USD's long position.The idea behind BTM and True USD 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
Other Complementary Tools
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| AI Investment Finder Use AI to screen and filter profitable investment opportunities | |
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume |