Correlation Between XRP and AAVE

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

Diversification Opportunities for XRP and AAVE

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between XRP and AAVE is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding XRP and AAVE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAVE and XRP 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 XRP 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 XRP i.e., XRP and AAVE go up and down completely randomly.

Pair Corralation between XRP and AAVE

Assuming the 90 days trading horizon XRP is expected to generate 0.47 times more return on investment than AAVE. However, XRP is 2.11 times less risky than AAVE. It trades about -0.1 of its potential returns per unit of risk. AAVE is currently generating about -0.05 per unit of risk. If you would invest  37.00  in XRP on May 21, 2022 and sell it today you would lose (3.00)  from holding XRP or give up 8.11% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

XRP  vs.  AAVE

 Performance (%) 
       Timeline  
XRP 
XRP Performance
0 of 100
Over the last 90 days XRP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Crypto's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for XRP investors.

XRP Price Channel

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 somewhat strong basic indicators, AAVE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AAVE Price Channel

XRP and AAVE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with XRP and AAVE

The main advantage of trading using opposite XRP and AAVE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XRP 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 XRP 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.
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.

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