Correlation Between Avanti Energy and Royal Helium

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

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

Diversification Opportunities for Avanti Energy and Royal Helium

0.72

Correlation Coefficient

Avanti Energy  Royal Helium

Poor diversification

The 3 months correlation between Avanti and Royal is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Avanti Energy and Royal Helium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Helium and Avanti Energy 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 Avanti Energy are associated (or correlated) with Royal Helium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Helium has no effect on the direction of Avanti Energy i.e., Avanti Energy and Royal Helium go up and down completely randomly.

Pair Corralation between Avanti Energy and Royal Helium

Assuming the 90 days horizon Avanti Energy is expected to under-perform the Royal Helium. But the stock apears to be less risky and, when comparing its historical volatility, Avanti Energy is 1.3 times less risky than Royal Helium. The stock trades about -0.15 of its potential returns per unit of risk. The Royal Helium is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  5.50  in Royal Helium on September 12, 2024 and sell it today you would lose (1.50) from holding Royal Helium or give up 27.27% of portfolio value over 90 days.

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

Avanti Energy  vs.  Royal Helium

Avanti Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avanti Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Royal Helium

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Avanti Energy and Royal Helium

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

The idea behind Avanti Energy and Royal Helium 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.