Correlation Between American Sierra and Avantis Small

Can any of the company-specific risk be diversified away by investing in both American Sierra and Avantis Small 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 American Sierra and Avantis Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Sierra Gold and Avantis Small Cap, you can compare the effects of market volatilities on American Sierra and Avantis Small 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 American Sierra with a short position of Avantis Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Sierra and Avantis Small.

Diversification Opportunities for American Sierra and Avantis Small

-0.49

Correlation Coefficient

American Sierra  Avantis Small

Very good diversification

The 3 months correlation between American and Avantis is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding American Sierra Gold and Avantis Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Small Cap and American Sierra 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 American Sierra Gold are associated (or correlated) with Avantis Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Small Cap has no effect on the direction of American Sierra i.e., American Sierra and Avantis Small go up and down completely randomly.

Pair Corralation between American Sierra and Avantis Small

Given the investment horizon of 90 days American Sierra Gold is expected to generate 16.31 times more return on investment than Avantis Small. However, American Sierra is 16.31 times more volatile than Avantis Small Cap. It trades about 0.06 of its potential returns per unit of risk. Avantis Small Cap is currently generating about 0.06 per unit of risk. If you would invest  3.00  in American Sierra Gold on September 13, 2024 and sell it today you would lose (2.60) from holding American Sierra Gold or give up 86.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

American Sierra Gold  vs.  Avantis Small Cap

American Sierra Gold

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Sierra Gold are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, American Sierra reported solid returns over the last few months and may actually be approaching a breakup point.

Avantis Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Avantis Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Sierra and Avantis Small

The main advantage of trading using opposite American Sierra and Avantis Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Sierra position performs unexpectedly, Avantis Small 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 Avantis Small will offset losses from the drop in Avantis Small's long position.

The idea behind American Sierra Gold and Avantis Small Cap 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.

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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.