Correlation Between Aave and SRM

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

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

Diversification Opportunities for Aave and SRM

-0.62

Correlation Coefficient

Aave  SRM

Excellent diversification

The 3 months correlation between Aave and SRM is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Aave and SRM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SRM 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 SRM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SRM has no effect on the direction of Aave i.e., Aave and SRM go up and down completely randomly.

Pair Corralation between Aave and SRM

Assuming the 90 days trading horizon Aave is expected to generate 1.08 times more return on investment than SRM. However, Aave is 1.08 times more volatile than SRM. It trades about 0.18 of its potential returns per unit of risk. SRM is currently generating about -0.02 per unit of risk. If you would invest  16,663  in Aave on April 24, 2025 and sell it today you would earn a total of  12,508  from holding Aave or generate 75.06% return on investment over 90 days.

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

Aave  vs.  SRM

Aave

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 14 (%) 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.

SRM

Risk-Adjusted Performance

Very Weak

Over the last 90 days SRM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for SRM shareholders.

Pair Trading with Aave and SRM

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

The idea behind Aave and SRM 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.