Correlation Between ARK and Bitcoin

Can any of the company-specific risk be diversified away by investing in both ARK 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 ARK and Bitcoin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ARK and Bitcoin, you can compare the effects of market volatilities on ARK 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 ARK with a short position of Bitcoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARK and Bitcoin.

Diversification Opportunities for ARK and Bitcoin

0.67

Correlation Coefficient

ARK  Bitcoin

Poor diversification

The 3 months correlation between ARK and Bitcoin is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ARK and Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin and ARK 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 ARK 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 ARK i.e., ARK and Bitcoin go up and down completely randomly.

Pair Corralation between ARK and Bitcoin

Assuming the 90 days trading horizon ARK is expected to generate 3.37 times more return on investment than Bitcoin. However, ARK is 3.37 times more volatile than Bitcoin. It trades about 0.08 of its potential returns per unit of risk. Bitcoin is currently generating about 0.2 per unit of risk. If you would invest  44.00  in ARK on January 17, 2024 and sell it today you would earn a total of  26.00  from holding ARK or generate 59.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.22%
Values	Daily Returns

ARK  vs.  Bitcoin

ARK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, ARK is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bitcoin

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 17 (%) 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.

Pair Trading with ARK and Bitcoin

The main advantage of trading using opposite ARK and Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARK 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 ARK 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.