Correlation Between Avalanche and Wrapped Bitcoin

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

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

Diversification Opportunities for Avalanche and Wrapped Bitcoin

0.8

Correlation Coefficient

Avalanche  Wrapped Bitcoin

Very poor diversification

The 3 months correlation between Avalanche and Wrapped is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and Wrapped Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wrapped Bitcoin and Avalanche 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 Avalanche are associated (or correlated) with Wrapped Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wrapped Bitcoin has no effect on the direction of Avalanche i.e., Avalanche and Wrapped Bitcoin go up and down completely randomly.

Pair Corralation between Avalanche and Wrapped Bitcoin

Assuming the 90 days trading horizon Avalanche is expected to generate 2.25 times less return on investment than Wrapped Bitcoin. In addition to that, Avalanche is 1.71 times more volatile than Wrapped Bitcoin. It trades about 0.01 of its total potential returns per unit of risk. Wrapped Bitcoin is currently generating about 0.05 per unit of volatility. If you would invest  3,773,027  in Wrapped Bitcoin on January 20, 2024 and sell it today you would earn a total of  2,579,532  from holding Wrapped Bitcoin or generate 68.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Avalanche  vs.  Wrapped Bitcoin

Avalanche

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Avalanche exhibited solid returns over the last few months and may actually be approaching a breakup point.

Wrapped Bitcoin

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wrapped Bitcoin are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Wrapped Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avalanche and Wrapped Bitcoin

The main advantage of trading using opposite Avalanche and Wrapped Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avalanche position performs unexpectedly, Wrapped 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 Wrapped Bitcoin will offset losses from the drop in Wrapped Bitcoin's long position.

The idea behind Avalanche and Wrapped 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.