Correlation Between Bitcoin and Bitcoin Gold

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

Diversification Opportunities for Bitcoin and Bitcoin Gold

0.29
  Correlation Coefficient

Modest diversification

The 3 months correlation between Bitcoin and Bitcoin is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and Bitcoin Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin Gold 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 Bitcoin Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bitcoin Gold has no effect on the direction of Bitcoin i.e., Bitcoin and Bitcoin Gold go up and down completely randomly.

Pair Corralation between Bitcoin and Bitcoin Gold

Assuming the 90 days trading horizon Bitcoin is expected to generate 30.85 times less return on investment than Bitcoin Gold. But when comparing it to its historical volatility, Bitcoin is 3.62 times less risky than Bitcoin Gold. It trades about 0.03 of its potential returns per unit of risk. Bitcoin Gold is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,916  in Bitcoin Gold on May 21, 2022 and sell it today you would earn a total of  954.00  from holding Bitcoin Gold or generate 49.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Bitcoin  vs.  Bitcoin Gold

 Performance (%) 
       Timeline  
Bitcoin 
Bitcoin Performance
0 of 100
Over the last 90 days Bitcoin has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's basic indicators remain somewhat strong which may send shares a bit higher in September 2022. The current disturbance may also be a sign of long term up-swing for Bitcoin investors.

Bitcoin Price Channel

Bitcoin Gold 
Bitcoin Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin Gold are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bitcoin Gold sustained solid returns over the last few months and may actually be approaching a breakup point.

Bitcoin Price Channel

Bitcoin and Bitcoin Gold Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bitcoin and Bitcoin Gold

The main advantage of trading using opposite Bitcoin and Bitcoin Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin position performs unexpectedly, Bitcoin Gold 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 Gold will offset losses from the drop in Bitcoin Gold's long position.
The idea behind Bitcoin and Bitcoin Gold 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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