Correlation Between Aave and Band Protocol

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

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

Diversification Opportunities for Aave and Band Protocol

0.83

Correlation Coefficient

Aave  Band Protocol

Very poor diversification

The 3 months correlation between Aave and Band is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Band Protocol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Band Protocol 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 Band Protocol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Band Protocol has no effect on the direction of Aave i.e., Aave and Band Protocol go up and down completely randomly.

Pair Corralation between Aave and Band Protocol

Assuming the 90 days trading horizon Aave is expected to generate 2.22 times less return on investment than Band Protocol. But when comparing it to its historical volatility, Aave is 1.47 times less risky than Band Protocol. It trades about 0.01 of its potential returns per unit of risk. Band Protocol is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  296.00  in Band Protocol on January 19, 2024 and sell it today you would lose (153.00) from holding Band Protocol or give up 51.69% of portfolio value over 90 days.

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

Aave  vs.  Band Protocol

Aave

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aave has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Band Protocol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Band Protocol has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Band Protocol is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aave and Band Protocol

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

The idea behind Aave and Band Protocol 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.