Correlation Between Avalanche and TEL
Can any of the company-specific risk be diversified away by investing in both Avalanche and TEL 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 TEL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Avalanche and TEL, you can compare the effects of market volatilities on Avalanche and TEL 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 TEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avalanche and TEL.
Diversification Opportunities for Avalanche and TEL
Almost no diversification
The 3 months correlation between Avalanche and TEL is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and TEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TEL 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 TEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TEL has no effect on the direction of Avalanche i.e., Avalanche and TEL go up and down completely randomly.
Pair Corralation between Avalanche and TEL
Assuming the 90 days trading horizon Avalanche is expected to generate 2.74 times less return on investment than TEL. But when comparing it to its historical volatility, Avalanche is 2.04 times less risky than TEL. It trades about 0.38 of its potential returns per unit of risk. TEL is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest 0.15 in TEL on August 30, 2024 and sell it today you would earn a total of 0.41 from holding TEL or generate 277.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Avalanche vs. TEL
Performance |
| Timeline |
| Avalanche |
| TEL |
Avalanche and TEL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Avalanche and TEL
The main advantage of trading using opposite Avalanche and TEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avalanche position performs unexpectedly, TEL 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 TEL will offset losses from the drop in TEL's long position.The idea behind Avalanche and TEL 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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