Correlation Between Aave and Babylon

Can any of the company-specific risk be diversified away by investing in both Aave and Babylon 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 Babylon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aave and Babylon, you can compare the effects of market volatilities on Aave and Babylon 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 Babylon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aave and Babylon.

Diversification Opportunities for Aave and Babylon

-0.57

Correlation Coefficient

Aave  Babylon

Excellent diversification

The 3 months correlation between Aave and Babylon is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Babylon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babylon 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 Babylon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babylon has no effect on the direction of Aave i.e., Aave and Babylon go up and down completely randomly.

Pair Corralation between Aave and Babylon

Assuming the 90 days trading horizon Aave is expected to generate 12.11 times less return on investment than Babylon. But when comparing it to its historical volatility, Aave is 22.73 times less risky than Babylon. It trades about 0.21 of its potential returns per unit of risk. Babylon is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  7.64  in Babylon on April 23, 2025 and sell it today you would lose (2.86) from holding Babylon or give up 37.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Aave  vs.  Babylon

Aave

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Aave exhibited solid returns over the last few months and may actually be approaching a breakup point.

Babylon

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Babylon are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Babylon exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aave and Babylon

The main advantage of trading using opposite Aave and Babylon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aave position performs unexpectedly, Babylon 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 Babylon will offset losses from the drop in Babylon's long position.

The idea behind Aave and Babylon 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.