Correlation Between China Rare and Avalon Advanced

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Can any of the company-specific risk be diversified away by investing in both China Rare and Avalon Advanced 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 China Rare and Avalon Advanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Rare Earth and Avalon Advanced Materials, you can compare the effects of market volatilities on China Rare and Avalon Advanced 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 China Rare with a short position of Avalon Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Rare and Avalon Advanced.

Diversification Opportunities for China Rare and Avalon Advanced

ChinaAvalonDiversified AwayChinaAvalonDiversified Away100%
-0.14
  Correlation Coefficient

Good diversification

The 3 months correlation between China and Avalon is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Rare Earth and Avalon Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalon Advanced Materials and China Rare 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 China Rare Earth are associated (or correlated) with Avalon Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalon Advanced Materials has no effect on the direction of China Rare i.e., China Rare and Avalon Advanced go up and down completely randomly.

Pair Corralation between China Rare and Avalon Advanced

If you would invest  1.00  in China Rare Earth on September 13, 2024 and sell it today you would earn a total of  5.00  from holding China Rare Earth or generate 500.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy1.59%
ValuesDaily Returns

China Rare Earth  vs.  Avalon Advanced Materials

 Performance 
JavaScript chart by amCharts 3.21.15OctNov 0100200300400500
JavaScript chart by amCharts 3.21.15CREQF AVLNF
       Timeline  
China Rare Earth 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in China Rare Earth are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Rare reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec0.010.020.030.040.050.06
Avalon Advanced Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Avalon Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Avalon Advanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Rare and Avalon Advanced Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-47.82-35.82-23.81-11.810.2213.2526.7240.1953.66 0.0050.0100.015
JavaScript chart by amCharts 3.21.15CREQF AVLNF
       Returns  

Pair Trading with China Rare and Avalon Advanced

The main advantage of trading using opposite China Rare and Avalon Advanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Rare position performs unexpectedly, Avalon Advanced 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 Avalon Advanced will offset losses from the drop in Avalon Advanced's long position.
The idea behind China Rare Earth and Avalon Advanced Materials 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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