Correlation Between Bitcoin and Ethereum
Can any of the company-specific risk be diversified away by investing in both Bitcoin and Ethereum 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 Ethereum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitcoin and Ethereum, you can compare the effects of market volatilities on Bitcoin and Ethereum 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 Ethereum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and Ethereum.
Diversification Opportunities for Bitcoin and Ethereum
Almost no diversification
The 3 months correlation between Bitcoin and Ethereum is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and Ethereum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethereum 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 Ethereum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethereum has no effect on the direction of Bitcoin i.e., Bitcoin and Ethereum go up and down completely randomly.
Pair Corralation between Bitcoin and Ethereum
Assuming the 90 days trading horizon Bitcoin is expected to generate 0.94 times more return on investment than Ethereum. However, Bitcoin is 1.07 times less risky than Ethereum. It trades about -0.11 of its potential returns per unit of risk. Ethereum is currently generating about -0.17 per unit of risk. If you would invest 6,785,730 in Bitcoin on January 19, 2024 and sell it today you would lose (636,340) from holding Bitcoin or give up 9.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bitcoin vs. Ethereum
Performance |
| Timeline |
| Bitcoin |
| Ethereum |
Bitcoin and Ethereum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bitcoin and Ethereum
The main advantage of trading using opposite Bitcoin and Ethereum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin position performs unexpectedly, Ethereum 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 Ethereum will offset losses from the drop in Ethereum's long position.The idea behind Bitcoin and Ethereum 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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