Correlation Between Aave and Litecoin

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

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

Diversification Opportunities for Aave and Litecoin

0.49

Correlation Coefficient

Aave  Litecoin

Very weak diversification

The 3 months correlation between Aave and Litecoin is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Litecoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litecoin 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 Litecoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litecoin has no effect on the direction of Aave i.e., Aave and Litecoin go up and down completely randomly.

Pair Corralation between Aave and Litecoin

Assuming the 90 days trading horizon Aave is expected to under-perform the Litecoin. In addition to that, Aave is 1.01 times more volatile than Litecoin. It trades about -0.13 of its total potential returns per unit of risk. Litecoin is currently generating about -0.02 per unit of volatility. If you would invest  10,307  in Litecoin on December 30, 2024 and sell it today you would lose (1,796) from holding Litecoin or give up 17.43% of portfolio value over 90 days.

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

Aave  vs.  Litecoin

Aave

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Aave shareholders.

Litecoin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Litecoin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Litecoin shareholders.

Pair Trading with Aave and Litecoin

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

The idea behind Aave and Litecoin 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.