Correlation Between Bitcoin and ARK Innovation

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Can any of the company-specific risk be diversified away by investing in both Bitcoin and ARK Innovation 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 ARK Innovation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitcoin and ARK Innovation ETF, you can compare the effects of market volatilities on Bitcoin and ARK Innovation 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 ARK Innovation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and ARK Innovation.

Diversification Opportunities for Bitcoin and ARK Innovation

0.32
  Correlation Coefficient

Weak diversification

The 3 months correlation between Bitcoin and ARK is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and ARK Innovation ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Innovation ETF 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 ARK Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Innovation ETF has no effect on the direction of Bitcoin i.e., Bitcoin and ARK Innovation go up and down completely randomly.

Pair Corralation between Bitcoin and ARK Innovation

Assuming the 90 days trading horizon Bitcoin is expected to generate 1.92 times more return on investment than ARK Innovation. However, Bitcoin is 1.92 times more volatile than ARK Innovation ETF. It trades about 0.02 of its potential returns per unit of risk. ARK Innovation ETF is currently generating about -0.46 per unit of risk. If you would invest  6,381,699  in Bitcoin on January 21, 2024 and sell it today you would earn a total of  12,700  from holding Bitcoin or generate 0.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.65%
ValuesDaily Returns

Bitcoin  vs.  ARK Innovation ETF

 Performance 
       Timeline  
Bitcoin 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.
ARK Innovation ETF 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days ARK Innovation ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Bitcoin and ARK Innovation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bitcoin and ARK Innovation

The main advantage of trading using opposite Bitcoin and ARK Innovation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin position performs unexpectedly, ARK Innovation 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 ARK Innovation will offset losses from the drop in ARK Innovation's long position.
The idea behind Bitcoin and ARK Innovation ETF 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.
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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