Correlation Between Aave and Chroma

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

Diversification Opportunities for Aave and Chroma

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Aave and Chroma is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Chroma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chroma 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 Chroma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chroma has no effect on the direction of Aave i.e., Aave and Chroma go up and down completely randomly.

Pair Corralation between Aave and Chroma

Assuming the 90 days trading horizon Aave is expected to under-perform the Chroma. But the crypto coin apears to be less risky and, when comparing its historical volatility, Aave is 1.36 times less risky than Chroma. The crypto coin trades about -0.05 of its potential returns per unit of risk. The Chroma is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  35.00  in Chroma on February 24, 2022 and sell it today you would lose (13.00)  from holding Chroma or give up 37.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.36%
ValuesDaily Returns

Aave  vs.  Chroma

 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 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

Chroma 
Chroma Performance
0 of 100
Over the last 90 days Chroma 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 technical indicators remain somewhat strong which may send shares a bit higher in June 2022. The current disturbance may also be a sign of long term up-swing for Chroma investors.

Chroma Price Channel

Aave and Chroma Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Aave and Chroma

The main advantage of trading using opposite Aave and Chroma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aave position performs unexpectedly, Chroma 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 Chroma will offset losses from the drop in Chroma's long position.
The idea behind Aave and Chroma 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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