Correlation Between Polkadot and Avalanche

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

Diversification Opportunities for Polkadot and Avalanche

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Polkadot and Avalanche is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Polkadot and Avalanche in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalanche and Polkadot 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 Polkadot are associated (or correlated) with Avalanche. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalanche has no effect on the direction of Polkadot i.e., Polkadot and Avalanche go up and down completely randomly.

Pair Corralation between Polkadot and Avalanche

Assuming the 90 days trading horizon Polkadot is expected to generate 2.46 times less return on investment than Avalanche. But when comparing it to its historical volatility, Polkadot is 1.31 times less risky than Avalanche. It trades about 0.04 of its potential returns per unit of risk. Avalanche is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,972  in Avalanche on December 29, 2023 and sell it today you would earn a total of  3,445  from holding Avalanche or generate 174.7% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Polkadot  vs.  Avalanche

 Performance 
       Timeline  
Polkadot 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Polkadot are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Polkadot exhibited solid returns over the last few months and may actually be approaching a breakup point.
Avalanche 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 8 (%) 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.

Polkadot and Avalanche Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Polkadot and Avalanche

The main advantage of trading using opposite Polkadot and Avalanche positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polkadot position performs unexpectedly, Avalanche 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 Avalanche will offset losses from the drop in Avalanche's long position.
The idea behind Polkadot and Avalanche 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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