Correlation Between Avalanche and CREAM

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

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

Diversification Opportunities for Avalanche and CREAM

-0.45

Correlation Coefficient

Avalanche  CREAM

Very good diversification

The 3 months correlation between Avalanche and CREAM is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and CREAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CREAM 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 CREAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CREAM has no effect on the direction of Avalanche i.e., Avalanche and CREAM go up and down completely randomly.

Pair Corralation between Avalanche and CREAM

Assuming the 90 days trading horizon Avalanche is expected to generate 0.26 times more return on investment than CREAM. However, Avalanche is 3.82 times less risky than CREAM. It trades about 0.27 of its potential returns per unit of risk. CREAM is currently generating about 0.05 per unit of risk. If you would invest  2,191  in Avalanche on September 3, 2024 and sell it today you would earn a total of  3,001  from holding Avalanche or generate 136.97% return on investment over 90 days.

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

Avalanche  vs.  CREAM

Avalanche

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Avalanche exhibited solid returns over the last few months and may actually be approaching a breakup point.

CREAM

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CREAM are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, CREAM exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avalanche and CREAM

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

The idea behind Avalanche and CREAM 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.