Correlation Between ARPA Chain and Aave

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

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

Diversification Opportunities for ARPA Chain and Aave

0.84

Correlation Coefficient

ARPA Chain  Aave

Very poor diversification

The 3 months correlation between ARPA and Aave is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding ARPA Chain and Aave in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aave and ARPA Chain 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 ARPA Chain are associated (or correlated) with Aave. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aave has no effect on the direction of ARPA Chain i.e., ARPA Chain and Aave go up and down completely randomly.

Pair Corralation between ARPA Chain and Aave

Assuming the 90 days trading horizon ARPA Chain is expected to generate 1.41 times more return on investment than Aave. However, ARPA Chain is 1.41 times more volatile than Aave. It trades about 0.05 of its potential returns per unit of risk. Aave is currently generating about -0.01 per unit of risk. If you would invest  6.47  in ARPA Chain on January 19, 2024 and sell it today you would earn a total of  0.38  from holding ARPA Chain or generate 5.87% return on investment over 90 days.

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

ARPA Chain  vs.  Aave

ARPA Chain

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ARPA Chain are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, ARPA Chain exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ARPA Chain and Aave

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

The idea behind ARPA Chain and Aave 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.