Can any of the company-specific risk be diversified away by investing in both Bitcoin Gold and BTM 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 Gold and BTM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitcoin Gold and BTM, you can compare the effects of market volatilities on Bitcoin Gold and BTM 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 Gold with a short position of BTM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin Gold and BTM.
Diversification Opportunities for Bitcoin Gold and BTM
The 3 months correlation between Bitcoin and BTM is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin Gold and BTM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTM and Bitcoin Gold 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 Gold are associated (or correlated) with BTM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTM has no effect on the direction of Bitcoin Gold i.e., Bitcoin Gold and BTM go up and down completely randomly.
Assuming the 90 days trading horizon Bitcoin Gold is expected to under-perform the BTM. In addition to that, Bitcoin Gold is 1.49 times more volatile than BTM. It trades about -0.04 of its total potential returns per unit of risk. BTM is currently generating about 0.04 per unit of volatility. If you would invest 1.28 in BTM on March 6, 2024 and sell it today you would earn a total of 0.05 from holding BTM or generate 3.91% return on investment over 90 days.
Over the last 90 days Bitcoin Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's technical and fundamental indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for Bitcoin Gold shareholders.
Compared to the overall equity markets, risk-adjusted returns on investments in BTM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, BTM may actually be approaching a critical reversion point that can send shares even higher in July 2024.