Correlation Between Aave and Ethereum Classic

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

By analyzing existing cross correlation between Aave and Ethereum Classic, you can compare the effects of market volatilities on Aave and Ethereum Classic 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 Ethereum Classic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aave and Ethereum Classic.

Diversification Opportunities for Aave and Ethereum Classic

0.81

Correlation Coefficient

Aave  Ethereum Classic

Very poor diversification

The 3 months correlation between Aave and Ethereum is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Ethereum Classic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethereum Classic 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 Ethereum Classic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethereum Classic has no effect on the direction of Aave i.e., Aave and Ethereum Classic go up and down completely randomly.

Pair Corralation between Aave and Ethereum Classic

Assuming the 90 days trading horizon Aave is expected to generate 1.05 times less return on investment than Ethereum Classic. In addition to that, Aave is 1.49 times more volatile than Ethereum Classic. It trades about 0.16 of its total potential returns per unit of risk. Ethereum Classic is currently generating about 0.25 per unit of volatility. If you would invest  1,808  in Ethereum Classic on September 3, 2024 and sell it today you would earn a total of  1,620  from holding Ethereum Classic or generate 89.6% return on investment over 90 days.

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

Aave  vs.  Ethereum Classic

Aave

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Aave exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ethereum Classic

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum Classic are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Ethereum Classic exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aave and Ethereum Classic

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

The idea behind Aave and Ethereum Classic 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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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.