Correlation Between XRP and BTS
Can any of the company-specific risk be diversified away by investing in both XRP and BTS 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 XRP and BTS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between XRP and BTS, you can compare the effects of market volatilities on XRP and BTS 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 XRP with a short position of BTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of XRP and BTS.
Diversification Opportunities for XRP and BTS
Poor diversification
The 3 months correlation between XRP and BTS is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding XRP and BTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTS and XRP 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 XRP are associated (or correlated) with BTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTS has no effect on the direction of XRP i.e., XRP and BTS go up and down completely randomly.
Pair Corralation between XRP and BTS
Assuming the 90 days trading horizon XRP is expected to generate 11.65 times less return on investment than BTS. But when comparing it to its historical volatility, XRP is 5.94 times less risky than BTS. It trades about 0.02 of its potential returns per unit of risk. BTS is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1.87 in BTS on January 20, 2024 and sell it today you would lose (1.57) from holding BTS or give up 83.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
XRP vs. BTS
Performance |
| Timeline |
| XRP |
| BTS |
XRP and BTS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with XRP and BTS
The main advantage of trading using opposite XRP and BTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XRP position performs unexpectedly, BTS 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 BTS will offset losses from the drop in BTS's long position.The idea behind XRP and BTS 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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