Correlation Between Ethena and Avalanche

Can any of the company-specific risk be diversified away by investing in both Ethena and Avalanche 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 Ethena and Avalanche into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ethena and Avalanche, you can compare the effects of market volatilities on Ethena and Avalanche 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 Ethena with a short position of Avalanche. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethena and Avalanche.

Diversification Opportunities for Ethena and Avalanche

-0.48

Correlation Coefficient

Ethena  Avalanche

Very good diversification

The 3 months correlation between Ethena and Avalanche is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ethena and Avalanche in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalanche and Ethena 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 Ethena are associated (or correlated) with Avalanche. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalanche has no effect on the direction of Ethena i.e., Ethena and Avalanche go up and down completely randomly.

Pair Corralation between Ethena and Avalanche

Assuming the 90 days trading horizon Ethena is expected to generate 13.38 times more return on investment than Avalanche. However, Ethena is 13.38 times more volatile than Avalanche. It trades about 0.08 of its potential returns per unit of risk. Avalanche is currently generating about 0.17 per unit of risk. If you would invest  0.00  in Ethena on February 15, 2024 and sell it today you would earn a total of  71.00  from holding Ethena or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ethena  vs.  Avalanche

Ethena

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ethena are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ethena exhibited solid returns over the last few months and may actually be approaching a breakup point.

Avalanche

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avalanche 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 June 2024. The latest tumult may also be a sign of longer-term up-swing for Avalanche shareholders.

Pair Trading with Ethena and Avalanche

The main advantage of trading using opposite Ethena and Avalanche positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethena position performs unexpectedly, Avalanche 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 Avalanche will offset losses from the drop in Avalanche's long position.

The idea behind Ethena and Avalanche 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.