Correlation Between Avantis All and Avantis Small

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

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

Diversification Opportunities for Avantis All and Avantis Small

0.75

Correlation Coefficient

Avantis All  Avantis Small

Poor diversification

The 3 months correlation between Avantis and Avantis is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Avantis All Equity 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 Avantis All 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 Avantis All Equity 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 Avantis All i.e., Avantis All and Avantis Small go up and down completely randomly.

Pair Corralation between Avantis All and Avantis Small

Given the investment horizon of 90 days Avantis All Equity is expected to generate 0.77 times more return on investment than Avantis Small. However, Avantis All Equity is 1.29 times less risky than Avantis Small. It trades about -0.03 of its potential returns per unit of risk. Avantis Small Cap is currently generating about -0.13 per unit of risk. If you would invest  7,236  in Avantis All Equity on December 29, 2024 and sell it today you would lose (121.00) from holding Avantis All Equity or give up 1.67% of portfolio value over 90 days.

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

Avantis All Equity  vs.  Avantis Small Cap

Avantis All Equity

Risk-Adjusted Performance

Very Weak

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

Avantis Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avantis Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Avantis All and Avantis Small

The main advantage of trading using opposite Avantis All and Avantis Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avantis All 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 Avantis All Equity 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.