Correlation Between Polkadot and Wrapped Bitcoin

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

Diversification Opportunities for Polkadot and Wrapped Bitcoin

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Polkadot and Wrapped is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Polkadot and Wrapped Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wrapped Bitcoin and Polkadot 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 Polkadot 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 Polkadot i.e., Polkadot and Wrapped Bitcoin go up and down completely randomly.

Pair Corralation between Polkadot and Wrapped Bitcoin

Assuming the 90 days trading horizon Polkadot is expected to under-perform the Wrapped Bitcoin. In addition to that, Polkadot is 1.46 times more volatile than Wrapped Bitcoin. It trades about -0.1 of its total potential returns per unit of risk. Wrapped Bitcoin is currently generating about -0.09 per unit of volatility. If you would invest  6,234,624  in Wrapped Bitcoin on May 11, 2022 and sell it today you would lose (3,910,495)  from holding Wrapped Bitcoin or give up 62.72% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy99.52%
ValuesDaily Returns

Polkadot  vs.  Wrapped Bitcoin

 Performance (%) 
       Timeline  
Polkadot 
Polkadot Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Polkadot are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Polkadot may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Polkadot Price Channel

Wrapped Bitcoin 
Wrapped Performance
0 of 100
Over the last 90 days Wrapped 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 Wrapped Bitcoin investors.

Wrapped Price Channel

Polkadot and Wrapped Bitcoin Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Polkadot and Wrapped Bitcoin

The main advantage of trading using opposite Polkadot and Wrapped Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polkadot 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 Polkadot 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.
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 Global Correlations module to find global opportunities by holding instruments from different markets.

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