Correlation Between AVALON TECHNOLOGIES and Servotech Power

Can any of the company-specific risk be diversified away by investing in both AVALON TECHNOLOGIES and Servotech Power 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 AVALON TECHNOLOGIES and Servotech Power into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AVALON TECHNOLOGIES LTD and Servotech Power Systems, you can compare the effects of market volatilities on AVALON TECHNOLOGIES and Servotech Power 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 AVALON TECHNOLOGIES with a short position of Servotech Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of AVALON TECHNOLOGIES and Servotech Power.

Diversification Opportunities for AVALON TECHNOLOGIES and Servotech Power

-0.25

Correlation Coefficient

AVALON TECHNOLOGIES  Servotech Power

Very good diversification

The 3 months correlation between AVALON and Servotech is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding AVALON TECHNOLOGIES LTD and Servotech Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Servotech Power Systems and AVALON TECHNOLOGIES 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 AVALON TECHNOLOGIES LTD are associated (or correlated) with Servotech Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Servotech Power Systems has no effect on the direction of AVALON TECHNOLOGIES i.e., AVALON TECHNOLOGIES and Servotech Power go up and down completely randomly.

Pair Corralation between AVALON TECHNOLOGIES and Servotech Power

Assuming the 90 days trading horizon AVALON TECHNOLOGIES is expected to generate 1.66 times less return on investment than Servotech Power. But when comparing it to its historical volatility, AVALON TECHNOLOGIES LTD is 1.36 times less risky than Servotech Power. It trades about 0.09 of its potential returns per unit of risk. Servotech Power Systems is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,157  in Servotech Power Systems on September 20, 2024 and sell it today you would earn a total of  13,741  from holding Servotech Power Systems or generate 435.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.42%
Values	Daily Returns

AVALON TECHNOLOGIES LTD  vs.  Servotech Power Systems

AVALON TECHNOLOGIES LTD

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AVALON TECHNOLOGIES LTD are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady essential indicators, AVALON TECHNOLOGIES sustained solid returns over the last few months and may actually be approaching a breakup point.

Servotech Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Servotech Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Servotech Power is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AVALON TECHNOLOGIES and Servotech Power

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

The idea behind AVALON TECHNOLOGIES LTD and Servotech Power Systems 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.