Correlation Between Aave and AST

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

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

Diversification Opportunities for Aave and AST

0.86

Correlation Coefficient

Aave  AST

Very poor diversification

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

Pair Corralation between Aave and AST

Assuming the 90 days trading horizon Aave is expected to under-perform the AST. But the crypto coin apears to be less risky and, when comparing its historical volatility, Aave is 1.22 times less risky than AST. The crypto coin trades about -0.2 of its potential returns per unit of risk. The AST is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  17.00  in AST on January 21, 2024 and sell it today you would lose (3.00) from holding AST or give up 17.65% of portfolio value over 90 days.

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

Aave  vs.  AST

Aave

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Aave is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

AST

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AST are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, AST exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aave and AST

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

The idea behind Aave and AST 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .