# Correlation Between Avalanche and Solana

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

## Diversification Opportunities for Avalanche and Solana

 0.69 Correlation Coefficient

### Poor diversification

The 3 months correlation between Avalanche and Solana is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and Solana in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solana 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 Solana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solana has no effect on the direction of Avalanche i.e., Avalanche and Solana go up and down completely randomly.

## Pair Corralation between Avalanche and Solana

Assuming the 90 days trading horizon Avalanche is expected to generate 1.12 times less return on investment than Solana. But when comparing it to its historical volatility, Avalanche is 1.06 times less risky than Solana. It trades about 0.27 of its potential returns per unit of risk. Solana is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2,361  in Solana on November 30, 2023 and sell it today you would earn a total of  9,604  from holding Solana or generate 406.78% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Significant Accuracy 100.0% Values Daily Returns

## Avalanche  vs.  Solana

 Performance
 Timeline
 Avalanche Correlation Profile

### 15 of 100

 Low High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 15 (%) 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.
 Performance Backtest
 Solana Correlation Profile

### 18 of 100

 Low High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Solana are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Solana exhibited solid returns over the last few months and may actually be approaching a breakup point.
 Performance Backtest

## Avalanche and Solana Volatility Contrast

 Predicted Return Density
 Returns

## Pair Trading with Avalanche and Solana

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