Correlation Between Avalon Acquisition and Aurora Acquisition

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

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

Diversification Opportunities for Avalon Acquisition and Aurora Acquisition

0.31

Correlation Coefficient

Avalon Acquisition  Aurora Acquisition

Weak diversification

The 3 months correlation between Avalon and Aurora is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Avalon Acquisition Warrant and Aurora Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Acquisition Corp and Avalon Acquisition 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 Avalon Acquisition Warrant are associated (or correlated) with Aurora Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Acquisition Corp has no effect on the direction of Avalon Acquisition i.e., Avalon Acquisition and Aurora Acquisition go up and down completely randomly.

Pair Corralation between Avalon Acquisition and Aurora Acquisition

Assuming the 90 days horizon Avalon Acquisition is expected to generate 3.83 times less return on investment than Aurora Acquisition. But when comparing it to its historical volatility, Avalon Acquisition Warrant is 2.27 times less risky than Aurora Acquisition. It trades about 0.1 of its potential returns per unit of risk. Aurora Acquisition Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Aurora Acquisition Corp on September 16, 2024 and sell it today you would earn a total of  3.00  from holding Aurora Acquisition Corp or generate 150.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	75.9%
Values	Daily Returns

Avalon Acquisition Warrant  vs.  Aurora Acquisition Corp

Avalon Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avalon Acquisition Warrant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Avalon Acquisition is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Aurora Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurora Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Aurora Acquisition is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Avalon Acquisition and Aurora Acquisition

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

The idea behind Avalon Acquisition Warrant and Aurora Acquisition Corp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.