Correlation Between Ethereum and Aave

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

Diversification Opportunities for Ethereum and Aave

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Ethereum and Aave is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and Aave in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aave and Ethereum 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 Ethereum are associated (or correlated) with Aave. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aave has no effect on the direction of Ethereum i.e., Ethereum and Aave go up and down completely randomly.

Pair Corralation between Ethereum and Aave

Assuming the 90 days trading horizon Ethereum is expected to under-perform the Aave. In addition to that, Ethereum is 1.16 times more volatile than Aave. It trades about -0.14 of its total potential returns per unit of risk. Aave is currently generating about -0.11 per unit of volatility. If you would invest  8,357  in Aave on July 6, 2022 and sell it today you would lose (901.00)  from holding Aave or give up 10.78% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Ethereum  vs.  Aave

 Performance (%) 
       Timeline  
Ethereum 
Ethereum Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ethereum sustained solid returns over the last few months and may actually be approaching a breakup point.

Ethereum Price Channel

Aave 
Aave Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aave sustained solid returns over the last few months and may actually be approaching a breakup point.

Aave Price Channel

Ethereum and Aave Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ethereum and Aave

The main advantage of trading using opposite Ethereum and Aave positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethereum position performs unexpectedly, Aave 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 Aave will offset losses from the drop in Aave's long position.
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The idea behind Ethereum and Aave 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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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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