Correlation Between Bitcoin and Litecoin

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Can any of the company-specific risk be diversified away by investing in both Bitcoin and Litecoin 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 Litecoin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitcoin and Litecoin, you can compare the effects of market volatilities on Bitcoin and Litecoin 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 Litecoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and Litecoin.

Diversification Opportunities for Bitcoin and Litecoin

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between Bitcoin and Litecoin is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and Litecoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litecoin 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 Litecoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litecoin has no effect on the direction of Bitcoin i.e., Bitcoin and Litecoin go up and down completely randomly.

Pair Corralation between Bitcoin and Litecoin

Assuming the 90 days trading horizon Bitcoin is expected to generate 1.46 times more return on investment than Litecoin. However, Bitcoin is 1.46 times more volatile than Litecoin. It trades about 0.64 of its potential returns per unit of risk. Litecoin is currently generating about 0.19 per unit of risk. If you would invest  3,994,174  in Bitcoin on November 25, 2023 and sell it today you would earn a total of  1,137,441  from holding Bitcoin or generate 28.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Bitcoin  vs.  Litecoin

 Performance 
       Timeline  
Bitcoin 

Risk-Adjusted Performance

15 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 15 (%) 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.
Litecoin 

Risk-Adjusted Performance

0 of 100

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

Bitcoin and Litecoin Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bitcoin and Litecoin

The main advantage of trading using opposite Bitcoin and Litecoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin position performs unexpectedly, Litecoin 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 Litecoin will offset losses from the drop in Litecoin's long position.
The idea behind Bitcoin and Litecoin 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.

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