Correlation Between Aave and WAXP

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

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

Diversification Opportunities for Aave and WAXP

-0.35

Correlation Coefficient

Aave  WAXP

Very good diversification

The 3 months correlation between Aave and WAXP is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Aave and WAXP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WAXP 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 WAXP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WAXP has no effect on the direction of Aave i.e., Aave and WAXP go up and down completely randomly.

Pair Corralation between Aave and WAXP

Assuming the 90 days trading horizon Aave is expected to generate 1.42 times more return on investment than WAXP. However, Aave is 1.42 times more volatile than WAXP. It trades about 0.2 of its potential returns per unit of risk. WAXP 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  14,277  from holding Aave or generate 85.68% return on investment over 90 days.

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

Aave  vs.  WAXP

Aave

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 15 (%) 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.

WAXP

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WAXP are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, WAXP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aave and WAXP

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

The idea behind Aave and WAXP 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.