Correlation Between Avalanche and MDS

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

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

Diversification Opportunities for Avalanche and MDS

-0.12

Correlation Coefficient

Avalanche  MDS

Good diversification

The 3 months correlation between Avalanche and MDS is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and MDS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDS 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 MDS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDS has no effect on the direction of Avalanche i.e., Avalanche and MDS go up and down completely randomly.

Pair Corralation between Avalanche and MDS

Assuming the 90 days trading horizon Avalanche is expected to generate 0.45 times more return on investment than MDS. However, Avalanche is 2.24 times less risky than MDS. It trades about 0.24 of its potential returns per unit of risk. MDS is currently generating about 0.05 per unit of risk. If you would invest  2,138  in Avalanche on September 1, 2024 and sell it today you would earn a total of  2,347  from holding Avalanche or generate 109.78% return on investment over 90 days.

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

Avalanche  vs.  MDS

Avalanche

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 19 (%) 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.

MDS

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MDS are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MDS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avalanche and MDS

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

The idea behind Avalanche and MDS 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.