Correlation Between Avalanche and Arbitrum

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

By analyzing existing cross correlation between Avalanche and Arbitrum, you can compare the effects of market volatilities on Avalanche and Arbitrum 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 Avalanche with a short position of Arbitrum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avalanche and Arbitrum.

Diversification Opportunities for Avalanche and Arbitrum

0.29

Correlation Coefficient

Avalanche  Arbitrum

Modest diversification

The 3 months correlation between Avalanche and Arbitrum is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and Arbitrum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrum and Avalanche 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 Avalanche are associated (or correlated) with Arbitrum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrum has no effect on the direction of Avalanche i.e., Avalanche and Arbitrum go up and down completely randomly.

Pair Corralation between Avalanche and Arbitrum

Assuming the 90 days trading horizon Avalanche is expected to under-perform the Arbitrum. But the crypto coin apears to be less risky and, when comparing its historical volatility, Avalanche is 1.16 times less risky than Arbitrum. The crypto coin trades about -0.28 of its potential returns per unit of risk. The Arbitrum is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  145.00  in Arbitrum on February 1, 2024 and sell it today you would lose (44.00) from holding Arbitrum or give up 30.34% of portfolio value over 90 days.

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

Avalanche  vs.  Arbitrum

Avalanche

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avalanche has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Avalanche is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Arbitrum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arbitrum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental drivers remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for Arbitrum shareholders.

Pair Trading with Avalanche and Arbitrum

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

The idea behind Avalanche and Arbitrum 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.