Correlation Between Aave and AERGO

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

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

Diversification Opportunities for Aave and AERGO

0.82

Correlation Coefficient

Aave  AERGO

Very poor diversification

The 3 months correlation between Aave and AERGO is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Aave and AERGO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AERGO and Aave 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 Aave are associated (or correlated) with AERGO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AERGO has no effect on the direction of Aave i.e., Aave and AERGO go up and down completely randomly.

Pair Corralation between Aave and AERGO

Assuming the 90 days trading horizon Aave is expected to under-perform the AERGO. But the crypto coin apears to be less risky and, when comparing its historical volatility, Aave is 1.58 times less risky than AERGO. The crypto coin trades about -0.21 of its potential returns per unit of risk. The AERGO is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  19.00  in AERGO on January 25, 2024 and sell it today you would lose (5.00) from holding AERGO or give up 26.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Aave  vs.  AERGO

Aave

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Aave may actually be approaching a critical reversion point that can send shares even higher in May 2024.

AERGO

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AERGO are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, AERGO exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aave and AERGO

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

The idea behind Aave and AERGO 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.