Correlation Between Aave and CHESS

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

Diversification Opportunities for Aave and CHESS

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Aave and CHESS is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Aave and CHESS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHESS 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 CHESS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHESS has no effect on the direction of Aave i.e., Aave and CHESS go up and down completely randomly.

Pair Corralation between Aave and CHESS

Assuming the 90 days trading horizon Aave is expected to generate 1.77 times less return on investment than CHESS. In addition to that, Aave is 1.03 times more volatile than CHESS. It trades about 0.14 of its total potential returns per unit of risk. CHESS is currently generating about 0.26 per unit of volatility. If you would invest  23.00  in CHESS on December 29, 2023 and sell it today you would earn a total of  9.00  from holding CHESS or generate 39.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Aave  vs.  CHESS

 Performance 
       Timeline  
Aave 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Aave exhibited solid returns over the last few months and may actually be approaching a breakup point.
CHESS 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in CHESS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CHESS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Aave and CHESS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Aave and CHESS

The main advantage of trading using opposite Aave and CHESS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aave position performs unexpectedly, CHESS 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 CHESS will offset losses from the drop in CHESS's long position.
The idea behind Aave and CHESS 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.
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 the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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