Correlation Between Sandbox and Avalanche

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

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

Diversification Opportunities for Sandbox and Avalanche

0.9

Correlation Coefficient

Sandbox  Avalanche

Almost no diversification

The 3 months correlation between Sandbox and Avalanche is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding The Sandbox and Avalanche in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalanche and Sandbox 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 The Sandbox are associated (or correlated) with Avalanche. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalanche has no effect on the direction of Sandbox i.e., Sandbox and Avalanche go up and down completely randomly.

Pair Corralation between Sandbox and Avalanche

Assuming the 90 days trading horizon The Sandbox is expected to generate 1.53 times more return on investment than Avalanche. However, Sandbox is 1.53 times more volatile than Avalanche. It trades about 0.23 of its potential returns per unit of risk. Avalanche is currently generating about 0.24 per unit of risk. If you would invest  24.00  in The Sandbox on September 2, 2024 and sell it today you would earn a total of  43.00  from holding The Sandbox or generate 179.17% return on investment over 90 days.

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

The Sandbox  vs.  Avalanche

Sandbox

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Sandbox are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Sandbox exhibited solid returns over the last few months and may actually be approaching a breakup point.

Avalanche

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 18 (%) 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.

Pair Trading with Sandbox and Avalanche

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

The idea behind The Sandbox and Avalanche 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.