Correlation Between Bitcoin and DOW

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

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

Diversification Opportunities for Bitcoin and DOW

0.27
  Correlation Coefficient
Bitcoin
DOW

Modest diversification

The 3 months correlation between Bitcoin and DOW is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW 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 DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Bitcoin i.e., Bitcoin and DOW go up and down completely randomly.
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Pair Corralation between Bitcoin and DOW

If you would invest  2,767,480  in DOW on July 29, 2021 and sell it today you would earn a total of  796,942  from holding DOW or generate 28.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy0.0%
ValuesDaily Returns

Bitcoin  vs.  DOW

 Performance (%) 
      Timeline 

Bitcoin and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

Bitcoin

Pair trading matchups for Bitcoin

Facebook vs. Bitcoin
GM vs. Bitcoin
ConocoPhillips vs. Bitcoin
Home Depot vs. Bitcoin
Originclear vs. Bitcoin
Pentair vs. Bitcoin
Alphabet vs. Bitcoin
Middlefield Banc vs. Bitcoin
Tiger Oil vs. Bitcoin
Sentinelone Inc vs. Bitcoin
Vmware vs. Bitcoin
Salesforce vs. Bitcoin
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Bitcoin as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Bitcoin's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Bitcoin's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Bitcoin.

DOW

Pair trading matchups for DOW

Merchants Bancorp vs. DOW
Middlefield Banc vs. DOW
Ckx Lands vs. DOW
United Rentals vs. DOW
Salesforce vs. DOW
Facebook vs. DOW
Originclear vs. DOW
Vmware vs. DOW
Oracle vs. DOW
Sentinelone Inc vs. DOW
Floor Decor vs. DOW
Alphabet vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with Bitcoin and DOW

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

Bitcoin

Pair trading matchups for Bitcoin

Tata Motors vs. Bitcoin
Facebook vs. Bitcoin
GM vs. Bitcoin
Salesforce vs. Bitcoin
ConocoPhillips vs. Bitcoin
Originclear vs. Bitcoin
Floor Decor vs. Bitcoin
Oracle vs. Bitcoin
Ginkgo Bioworks vs. Bitcoin
Tiger Oil vs. Bitcoin
Home Depot vs. Bitcoin
Merchants Bancorp vs. Bitcoin
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Bitcoin as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Bitcoin's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Bitcoin's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Bitcoin.
The idea behind Bitcoin and DOW 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.

DOW

Pair trading matchups for DOW

Home Depot vs. DOW
Middlefield Banc vs. DOW
Ginkgo Bioworks vs. DOW
Tata Motors vs. DOW
Facebook vs. DOW
Vmware vs. DOW
Oracle vs. DOW
ConocoPhillips vs. DOW
Tiger Oil vs. DOW
United Rentals vs. DOW
Originclear vs. DOW
Tellurian vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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