Correlation Between BIX and Avalanche
Can any of the company-specific risk be diversified away by investing in both BIX 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 BIX and Avalanche into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BIX and Avalanche, you can compare the effects of market volatilities on BIX 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 BIX with a short position of Avalanche. Check out your portfolio center. Please also check ongoing floating volatility patterns of BIX and Avalanche.
Diversification Opportunities for BIX and Avalanche
Almost no diversification
The 3 months correlation between BIX and Avalanche is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding BIX and Avalanche in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalanche and BIX 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 BIX 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 BIX i.e., BIX and Avalanche go up and down completely randomly.
Pair Corralation between BIX and Avalanche
Assuming the 90 days trading horizon BIX is expected to generate 1.79 times less return on investment than Avalanche. But when comparing it to its historical volatility, BIX is 1.5 times less risky than Avalanche. It trades about 0.35 of its potential returns per unit of risk. Avalanche is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest 2,499 in Avalanche on August 31, 2024 and sell it today you would earn a total of 1,790 from holding Avalanche or generate 71.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BIX vs. Avalanche
Performance |
| Timeline |
| BIX |
| Avalanche |
BIX and Avalanche Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BIX and Avalanche
The main advantage of trading using opposite BIX and Avalanche positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BIX 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 BIX 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.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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