Correlation Between Aave and Fwog
Can any of the company-specific risk be diversified away by investing in both Aave and Fwog 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 Fwog into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aave and Fwog, you can compare the effects of market volatilities on Aave and Fwog 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 Fwog. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aave and Fwog.
Diversification Opportunities for Aave and Fwog
Good diversification
The 3 months correlation between Aave and Fwog is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Fwog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fwog 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 Fwog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fwog has no effect on the direction of Aave i.e., Aave and Fwog go up and down completely randomly.
Pair Corralation between Aave and Fwog
Assuming the 90 days trading horizon Aave is expected to generate 33.85 times less return on investment than Fwog. But when comparing it to its historical volatility, Aave is 22.9 times less risky than Fwog. It trades about 0.15 of its potential returns per unit of risk. Fwog is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 0.00 in Fwog on October 9, 2024 and sell it today you would earn a total of 26.00 from holding Fwog or generate 9.223372036854776E16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aave vs. Fwog
Performance |
| Timeline |
| Aave |
| Fwog |
Aave and Fwog Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aave and Fwog
The main advantage of trading using opposite Aave and Fwog positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aave position performs unexpectedly, Fwog 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 Fwog will offset losses from the drop in Fwog's long position.The idea behind Aave and Fwog 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 the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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