Correlation Between AAVE and XRP

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

Diversification Opportunities for AAVE and XRP

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between AAVE and XRP is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding AAVE and XRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XRP 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 XRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XRP has no effect on the direction of AAVE i.e., AAVE and XRP go up and down completely randomly.

Pair Corralation between AAVE and XRP

Assuming the 90 days trading horizon AAVE is expected to generate 2.28 times more return on investment than XRP. However, AAVE is 2.28 times more volatile than XRP. It trades about 0.18 of its potential returns per unit of risk. XRP is currently generating about 0.08 per unit of risk. If you would invest  6,659  in AAVE on May 15, 2022 and sell it today you would earn a total of  4,827  from holding AAVE or generate 72.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

AAVE  vs.  XRP

 Performance (%) 
       Timeline  
AAVE 
AAVE Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AAVE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AAVE sustained solid returns over the last few months and may actually be approaching a breakup point.

AAVE Price Channel

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 and XRP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with AAVE and XRP

The main advantage of trading using opposite AAVE and XRP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AAVE position performs unexpectedly, XRP 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 XRP will offset losses from the drop in XRP's long position.
The idea behind AAVE and XRP 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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