Correlation Between Avicanna and For Earth

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

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

Diversification Opportunities for Avicanna and For Earth

0.09

Correlation Coefficient

Avicanna  For Earth

Significant diversification

The 3 months correlation between Avicanna and For is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Avicanna and For The Earth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on For The Earth and Avicanna 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 Avicanna are associated (or correlated) with For Earth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of For The Earth has no effect on the direction of Avicanna i.e., Avicanna and For Earth go up and down completely randomly.

Pair Corralation between Avicanna and For Earth

Assuming the 90 days horizon Avicanna is expected to generate 40.23 times less return on investment than For Earth. But when comparing it to its historical volatility, Avicanna is 14.77 times less risky than For Earth. It trades about 0.04 of its potential returns per unit of risk. For The Earth is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.01  in For The Earth on September 16, 2024 and sell it today you would earn a total of  0.00  from holding For The Earth or generate 0.0% return on investment over 90 days.

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

Avicanna  vs.  For The Earth

Avicanna

Risk-Adjusted Performance

3 of 100

Insignificant

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

For The Earth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in For The Earth are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, For Earth reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avicanna and For Earth

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

The idea behind Avicanna and For The Earth 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.