Correlation Between Ava Risk and ASX

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

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

Diversification Opportunities for Ava Risk and ASX

0.7

Correlation Coefficient

Ava Risk  ASX

Poor diversification

The 3 months correlation between Ava and ASX is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ava Risk Group and ASX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASX and Ava Risk 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 Ava Risk Group are associated (or correlated) with ASX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASX has no effect on the direction of Ava Risk i.e., Ava Risk and ASX go up and down completely randomly.

Pair Corralation between Ava Risk and ASX

Assuming the 90 days trading horizon Ava Risk Group is expected to generate 3.58 times more return on investment than ASX. However, Ava Risk is 3.58 times more volatile than ASX. It trades about 0.14 of its potential returns per unit of risk. ASX is currently generating about 0.05 per unit of risk. If you would invest  9.60  in Ava Risk Group on September 27, 2024 and sell it today you would earn a total of  3.40  from holding Ava Risk Group or generate 35.42% return on investment over 90 days.

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

Ava Risk Group  vs.  ASX

Ava Risk Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ava Risk Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ava Risk unveiled solid returns over the last few months and may actually be approaching a breakup point.

ASX

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ASX are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ASX is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ava Risk and ASX

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

The idea behind Ava Risk Group and ASX 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.