Correlation Between Aave and Synthetix

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

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

Diversification Opportunities for Aave and Synthetix

0.46

Correlation Coefficient

Aave  Synthetix

Very weak diversification

The 3 months correlation between Aave and Synthetix is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Synthetix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synthetix 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 Synthetix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synthetix has no effect on the direction of Aave i.e., Aave and Synthetix go up and down completely randomly.

Pair Corralation between Aave and Synthetix

Assuming the 90 days trading horizon Aave is expected to generate 1.1 times more return on investment than Synthetix. However, Aave is 1.1 times more volatile than Synthetix. It trades about 0.04 of its potential returns per unit of risk. Synthetix is currently generating about -0.17 per unit of risk. If you would invest  19,894  in Aave on November 28, 2024 and sell it today you would earn a total of  514.00  from holding Aave or generate 2.58% return on investment over 90 days.

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

Aave  vs.  Synthetix

Aave

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 3 (%) 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.

Synthetix

Risk-Adjusted Performance

Very Weak

Over the last 90 days Synthetix 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 basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for Synthetix shareholders.

Pair Trading with Aave and Synthetix

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

The idea behind Aave and Synthetix 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.