Correlation Between Aave and Bitcoin Cash

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

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

Diversification Opportunities for Aave and Bitcoin Cash

0.66

Correlation Coefficient

Aave  Bitcoin Cash

Poor diversification

The 3 months correlation between Aave and Bitcoin is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Bitcoin Cash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin Cash 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 Bitcoin Cash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bitcoin Cash has no effect on the direction of Aave i.e., Aave and Bitcoin Cash go up and down completely randomly.

Pair Corralation between Aave and Bitcoin Cash

Assuming the 90 days trading horizon Aave is expected to under-perform the Bitcoin Cash. But the crypto coin apears to be less risky and, when comparing its historical volatility, Aave is 1.1 times less risky than Bitcoin Cash. The crypto coin trades about -0.22 of its potential returns per unit of risk. The Bitcoin Cash is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  40,967  in Bitcoin Cash on January 19, 2024 and sell it today you would earn a total of  6,065  from holding Bitcoin Cash or generate 14.8% return on investment over 90 days.

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

Aave  vs.  Bitcoin Cash

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.

Bitcoin Cash

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin Cash are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, Bitcoin Cash exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aave and Bitcoin Cash

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

The idea behind Aave and Bitcoin Cash 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.