Correlation Between Avalanche and Aave

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

Diversification Opportunities for Avalanche and Aave

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Avalanche and Aave is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and Aave in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aave and Avalanche 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 Avalanche 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 Avalanche i.e., Avalanche and Aave go up and down completely randomly.

Pair Corralation between Avalanche and Aave

Assuming the 90 days trading horizon Avalanche is expected to generate 1.17 times less return on investment than Aave. But when comparing it to its historical volatility, Avalanche is 1.01 times less risky than Aave. It trades about 0.02 of its potential returns per unit of risk. Aave is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  16,446  in Aave on December 30, 2023 and sell it today you would lose (3,618) from holding Aave or give up 22.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Avalanche  vs.  Aave

 Performance 
       Timeline  
Avalanche 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Avalanche exhibited solid returns over the last few months and may actually be approaching a breakup point.
Aave 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 7 (%) 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.

Avalanche and Aave Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Avalanche and Aave

The main advantage of trading using opposite Avalanche and Aave positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avalanche 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 Avalanche 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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