Correlation Between ESSEX and Avis Budget

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

By analyzing existing cross correlation between ESSEX PORTFOLIO L and Avis Budget Group, you can compare the effects of market volatilities on ESSEX and Avis Budget 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 ESSEX with a short position of Avis Budget. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESSEX and Avis Budget.

Diversification Opportunities for ESSEX and Avis Budget

0.15

Correlation Coefficient

ESSEX  Avis Budget

Average diversification

The 3 months correlation between ESSEX and Avis is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding ESSEX PORTFOLIO L and Avis Budget Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avis Budget Group and ESSEX 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 ESSEX PORTFOLIO L are associated (or correlated) with Avis Budget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avis Budget Group has no effect on the direction of ESSEX i.e., ESSEX and Avis Budget go up and down completely randomly.

Pair Corralation between ESSEX and Avis Budget

Assuming the 90 days trading horizon ESSEX PORTFOLIO L is expected to under-perform the Avis Budget. But the bond apears to be less risky and, when comparing its historical volatility, ESSEX PORTFOLIO L is 18.14 times less risky than Avis Budget. The bond trades about -0.13 of its potential returns per unit of risk. The Avis Budget Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  8,235  in Avis Budget Group on September 25, 2024 and sell it today you would lose (137.00) from holding Avis Budget Group or give up 1.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	87.3%
Values	Daily Returns

ESSEX PORTFOLIO L  vs.  Avis Budget Group

ESSEX PORTFOLIO L

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSEX PORTFOLIO L has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ESSEX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Avis Budget Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avis Budget Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Avis Budget is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ESSEX and Avis Budget

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

The idea behind ESSEX PORTFOLIO L and Avis Budget Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.