Correlation Between Avalanche and Marlin
Can any of the company-specific risk be diversified away by investing in both Avalanche and Marlin 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 Avalanche and Marlin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Avalanche and Marlin, you can compare the effects of market volatilities on Avalanche and Marlin 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 Avalanche with a short position of Marlin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avalanche and Marlin.
Diversification Opportunities for Avalanche and Marlin
Very poor diversification
The 3 months correlation between Avalanche and Marlin is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and Marlin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marlin and Avalanche 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 Avalanche are associated (or correlated) with Marlin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marlin has no effect on the direction of Avalanche i.e., Avalanche and Marlin go up and down completely randomly.
Pair Corralation between Avalanche and Marlin
Assuming the 90 days trading horizon Avalanche is expected to generate 1.11 times less return on investment than Marlin. But when comparing it to its historical volatility, Avalanche is 1.42 times less risky than Marlin. It trades about 0.49 of its potential returns per unit of risk. Marlin is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 1.03 in Marlin on September 2, 2024 and sell it today you would earn a total of 0.96 from holding Marlin or generate 93.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Avalanche vs. Marlin
Performance |
| Timeline |
| Avalanche |
| Marlin |
Avalanche and Marlin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Avalanche and Marlin
The main advantage of trading using opposite Avalanche and Marlin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avalanche position performs unexpectedly, Marlin 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 Marlin will offset losses from the drop in Marlin's long position.The idea behind Avalanche and Marlin 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.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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