Correlation Between Associated Alcohols and Avonmore Capital

Can any of the company-specific risk be diversified away by investing in both Associated Alcohols and Avonmore Capital 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 Associated Alcohols and Avonmore Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Associated Alcohols Breweries and Avonmore Capital Management, you can compare the effects of market volatilities on Associated Alcohols and Avonmore Capital 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 Associated Alcohols with a short position of Avonmore Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated Alcohols and Avonmore Capital.

Diversification Opportunities for Associated Alcohols and Avonmore Capital

0.6

Correlation Coefficient

Associated Alcohols  Avonmore Capital

Poor diversification

The 3 months correlation between Associated and Avonmore is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Associated Alcohols Breweries and Avonmore Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avonmore Capital Man and Associated Alcohols 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 Associated Alcohols Breweries are associated (or correlated) with Avonmore Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avonmore Capital Man has no effect on the direction of Associated Alcohols i.e., Associated Alcohols and Avonmore Capital go up and down completely randomly.

Pair Corralation between Associated Alcohols and Avonmore Capital

Assuming the 90 days trading horizon Associated Alcohols Breweries is expected to generate 0.88 times more return on investment than Avonmore Capital. However, Associated Alcohols Breweries is 1.14 times less risky than Avonmore Capital. It trades about 0.09 of its potential returns per unit of risk. Avonmore Capital Management is currently generating about 0.05 per unit of risk. If you would invest  95,655  in Associated Alcohols Breweries on November 29, 2024 and sell it today you would earn a total of  20,410  from holding Associated Alcohols Breweries or generate 21.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Associated Alcohols Breweries  vs.  Avonmore Capital Management

Associated Alcohols

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Associated Alcohols Breweries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain fundamental indicators, Associated Alcohols reported solid returns over the last few months and may actually be approaching a breakup point.

Avonmore Capital Man

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Associated Alcohols and Avonmore Capital

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

The idea behind Associated Alcohols Breweries and Avonmore Capital Management 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.