Correlation Between NEM and Bitcoin
Can any of the company-specific risk be diversified away by investing in both NEM and Bitcoin 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 NEM and Bitcoin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEM and Bitcoin, you can compare the effects of market volatilities on NEM and Bitcoin 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 NEM with a short position of Bitcoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEM and Bitcoin.
Diversification Opportunities for NEM and Bitcoin
Poor diversification
The 3 months correlation between NEM and Bitcoin is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding NEM and Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin and NEM 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 NEM are associated (or correlated) with Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bitcoin has no effect on the direction of NEM i.e., NEM and Bitcoin go up and down completely randomly.
Pair Corralation between NEM and Bitcoin
Assuming the 90 days trading horizon NEM is expected to under-perform the Bitcoin. In addition to that, NEM is 2.05 times more volatile than Bitcoin. It trades about -0.2 of its total potential returns per unit of risk. Bitcoin is currently generating about -0.07 per unit of volatility. If you would invest 6,999,022 in Bitcoin on January 25, 2024 and sell it today you would lose (367,285) from holding Bitcoin or give up 5.25% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
NEM vs. Bitcoin
Performance |
Timeline |
NEM |
Bitcoin |
NEM and Bitcoin Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with NEM and Bitcoin
The main advantage of trading using opposite NEM and Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEM position performs unexpectedly, Bitcoin 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 Bitcoin will offset losses from the drop in Bitcoin's long position.The idea behind NEM and Bitcoin 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
Other Complementary Tools
AI Investment Finder Use AI to screen and filter profitable investment opportunities | |
Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences | |
Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
Portfolio Manager State of the art Portfolio Manager to monitor and improve performance of your invested capital |