Correlation Between Aave and Bitcoin

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

Diversification Opportunities for Aave and Bitcoin

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Aave and Bitcoin is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Bitcoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitcoin 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 Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bitcoin has no effect on the direction of Aave i.e., Aave and Bitcoin go up and down completely randomly.

Pair Corralation between Aave and Bitcoin

Assuming the 90 days trading horizon Aave is expected to under-perform the Bitcoin. In addition to that, Aave is 1.77 times more volatile than Bitcoin. It trades about -0.07 of its total potential returns per unit of risk. Bitcoin is currently generating about 0.06 per unit of volatility. If you would invest  917,722  in Bitcoin on April 8, 2022 and sell it today you would earn a total of  1,131,844  from holding Bitcoin or generate 123.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy36.26%
ValuesDaily Returns

Aave  vs.  Bitcoin

 Performance (%) 
      Timeline 
Aave 
Aave Performance
0 of 100
Over the last 90 days Aave has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's basic indicators remain somewhat strong which may send shares a bit higher in August 2022. The current disturbance may also be a sign of long term up-swing for Aave investors.

Aave Price Channel

Bitcoin 
Bitcoin Performance
0 of 100
Over the last 90 days Bitcoin has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's basic indicators remain somewhat strong which may send shares a bit higher in August 2022. The current disturbance may also be a sign of long term up-swing for Bitcoin investors.

Bitcoin Price Channel

Aave and Bitcoin Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Aave and Bitcoin

The main advantage of trading using opposite Aave and Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aave position performs unexpectedly, Bitcoin 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 Bitcoin will offset losses from the drop in Bitcoin's long position.
The idea behind Aave and Bitcoin 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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