Understanding the Relationship
Investors often explore diversification by combining assets like Bitcoin (BTC) and Binance Coin (BNB). While correlation alone doesn’t predict future returns, it helps assess diversifiable risk—how these assets interact in a portfolio.
Key Takeaways:
- 3-month correlation: 0.93 (indicating very strong co-movement).
- Risk diversification: Minimal, due to high overlap in price movements.
- Pair trading: Long BTC/short BNB strategies may hedge unsystematic risk.
Diversification Potential
Limited Overlap Benefits
Despite holding both assets, 93% correlation means Bitcoin and Binance Coin move almost in lockstep. Overlapping price action leaves little room for risk reduction.
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Volatility Comparison
| Metric | Bitcoin (BTC) | Binance Coin (BNB) |
|--------------|---------------|---------------------|
| 90-day ROI | 1.37x higher | Baseline |
| Volatility | 1.37x higher | Less volatile |
BTC offers higher returns but carries greater risk. BNB provides modest, steadier performance.
Pair Trading Strategies
Hedging Market Risk
- Long BTC + Short BNB: Capitalizes on BTC’s outperformance while offsetting BNB’s downside.
- Market-neutral: Minimizes exposure to sector-wide downturns.
Example: A $10.1M BTC investment (April 2025) yielded $753,900 (7.42%) in 90 days, outperforming BNB.
Risk-Adjusted Performance
Bitcoin (BTC)
- Ranking: Top 19% globally for risk-adjusted returns.
- Outlook: Strong recent performance despite volatile fundamentals.
Binance Coin (BNB)
- Ranking: Top 11% globally.
- Outlook: Stable returns with lower volatility.
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FAQs
1. Can BTC and BNB diversify my portfolio?
Given their 0.93 correlation, diversification benefits are minimal. They largely move together.
2. Which is riskier: BTC or BNB?
BTC is 1.37x more volatile but offers higher returns. BNB is comparatively stable.
3. Is pair trading effective for these coins?
Yes. A long BTC/short BNB strategy can hedge against unsystematic risk.
4. How accurate is the 3-month correlation data?
Historical accuracy is 100%, based on daily returns.
Complementary Tools
- Bollinger Bands: Analyze price volatility.
- Global Correlations: Identify cross-market opportunities.
- Portfolio Diagnostics: Monitor asset interactions.
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