Correlation Between RWE AG and Avista
Can any of the company-specific risk be diversified away by investing in both RWE AG and Avista 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 RWE AG and Avista into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RWE AG PK and Avista, you can compare the effects of market volatilities on RWE AG and Avista 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 RWE AG with a short position of Avista. Check out your portfolio center. Please also check ongoing floating volatility patterns of RWE AG and Avista.
Diversification Opportunities for RWE AG and Avista
Very weak diversification
The 3 months correlation between RWE and Avista is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and Avista in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avista and RWE AG 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 RWE AG PK are associated (or correlated) with Avista. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avista has no effect on the direction of RWE AG i.e., RWE AG and Avista go up and down completely randomly.
Pair Corralation between RWE AG and Avista
Assuming the 90 days horizon RWE AG PK is expected to under-perform the Avista. In addition to that, RWE AG is 1.12 times more volatile than Avista. It trades about -0.03 of its total potential returns per unit of risk. Avista is currently generating about 0.01 per unit of volatility. If you would invest 3,827 in Avista on August 27, 2024 and sell it today you would earn a total of 86.00 from holding Avista or generate 2.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
RWE AG PK vs. Avista
Performance |
| Timeline |
| RWE AG PK |
| Avista |
RWE AG and Avista Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RWE AG and Avista
The main advantage of trading using opposite RWE AG and Avista positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RWE AG position performs unexpectedly, Avista 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 Avista will offset losses from the drop in Avista's long position.| RWE AG vs. TransAlta Corp | RWE AG vs. Pampa Energia SA | RWE AG vs. Vistra Energy Corp | RWE AG vs. NRG Energy |
| Avista vs. Allete Inc | Avista vs. Black Hills | Avista vs. Montauk Renewables | Avista vs. Companhia Paranaense de |
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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