Correlation Between Avi and Firstrand

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

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

Diversification Opportunities for Avi and Firstrand

-0.45

Correlation Coefficient

Avi  Firstrand

Very good diversification

The 3 months correlation between Avi and Firstrand is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Avi and Firstrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firstrand and Avi 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 Avi are associated (or correlated) with Firstrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firstrand has no effect on the direction of Avi i.e., Avi and Firstrand go up and down completely randomly.

Pair Corralation between Avi and Firstrand

Assuming the 90 days trading horizon Avi is expected to generate 0.9 times more return on investment than Firstrand. However, Avi is 1.11 times less risky than Firstrand. It trades about -0.04 of its potential returns per unit of risk. Firstrand is currently generating about -0.11 per unit of risk. If you would invest  1,086,809  in Avi on October 12, 2024 and sell it today you would lose (30,909) from holding Avi or give up 2.84% of portfolio value over 90 days.

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

Avi  vs.  Firstrand

Avi

Risk-Adjusted Performance

0 of 100

Very Weak

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

Firstrand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Firstrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Avi and Firstrand

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

The idea behind Avi and Firstrand 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.