Correlation Between Avision and Test Rite
Can any of the company-specific risk be diversified away by investing in both Avision and Test Rite 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 Avision and Test Rite into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Avision and Test Rite International, you can compare the effects of market volatilities on Avision and Test Rite 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 Avision with a short position of Test Rite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avision and Test Rite.
Diversification Opportunities for Avision and Test Rite
Significant diversification
The 3 months correlation between Avision and Test is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Avision and Test Rite International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Test Rite International and Avision 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 Avision are associated (or correlated) with Test Rite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Test Rite International has no effect on the direction of Avision i.e., Avision and Test Rite go up and down completely randomly.
Pair Corralation between Avision and Test Rite
Assuming the 90 days trading horizon Avision is expected to under-perform the Test Rite. In addition to that, Avision is 8.7 times more volatile than Test Rite International. It trades about -0.23 of its total potential returns per unit of risk. Test Rite International is currently generating about -0.02 per unit of volatility. If you would invest 2,025 in Test Rite International on September 2, 2024 and sell it today you would lose (5.00) from holding Test Rite International or give up 0.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Avision vs. Test Rite International
Performance |
| Timeline |
| Avision |
| Test Rite International |
Avision and Test Rite Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Avision and Test Rite
The main advantage of trading using opposite Avision and Test Rite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avision position performs unexpectedly, Test Rite 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 Test Rite will offset losses from the drop in Test Rite's long position.The idea behind Avision and Test Rite International 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.| Test Rite vs. President Chain Store | Test Rite vs. Far Eastern Department | Test Rite vs. Mercuries Associates Holding | Test Rite vs. China Motor Corp |
Check out your portfolio center.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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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