Can any of the company-specific risk be diversified away by investing in both Bitcoin SV and Ethereum 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 SV and Ethereum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitcoin SV and Ethereum, you can compare the effects of market volatilities on Bitcoin SV and Ethereum 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 SV with a short position of Ethereum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin SV and Ethereum.
Diversification Opportunities for Bitcoin SV and Ethereum
The 3 months correlation between Bitcoin and Ethereum is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin SV and Ethereum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethereum and Bitcoin SV 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 SV are associated (or correlated) with Ethereum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethereum has no effect on the direction of Bitcoin SV i.e., Bitcoin SV and Ethereum go up and down completely randomly.
Assuming the 90 days trading horizon Bitcoin SV is expected to generate 1.81 times less return on investment than Ethereum. In addition to that, Bitcoin SV is 1.42 times more volatile than Ethereum. It trades about 0.03 of its total potential returns per unit of risk. Ethereum is currently generating about 0.08 per unit of volatility. If you would invest 106,710 in Ethereum on March 6, 2024 and sell it today you would earn a total of 274,571 from holding Ethereum or generate 257.31% return on investment over 90 days.
Over the last 90 days Bitcoin SV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for Bitcoin SV shareholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Ethereum is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.