Correlation Between Chainlink and Aave

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

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

Diversification Opportunities for Chainlink and Aave

0.83

Correlation Coefficient

Chainlink  Aave

Very poor diversification

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

Pair Corralation between Chainlink and Aave

Assuming the 90 days trading horizon Chainlink is expected to under-perform the Aave. But the crypto coin apears to be less risky and, when comparing its historical volatility, Chainlink is 1.07 times less risky than Aave. The crypto coin trades about 0.0 of its potential returns per unit of risk. The Aave is currently generating about 0.04 of returns per unit of risk over similar time horizon. 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	Strong
Accuracy	100.0%
Values	Daily Returns

Chainlink  vs.  Aave

Chainlink

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chainlink has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Chainlink is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Chainlink and Aave

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

The idea behind Chainlink and Aave 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.