Correlation Between Avoca LLC and Arkema SA

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

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

Diversification Opportunities for Avoca LLC and Arkema SA

0.24

Correlation Coefficient

Avoca LLC  Arkema SA

Modest diversification

The 3 months correlation between Avoca and Arkema is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Avoca LLC and Arkema SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkema SA and Avoca LLC 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 Avoca LLC are associated (or correlated) with Arkema SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkema SA has no effect on the direction of Avoca LLC i.e., Avoca LLC and Arkema SA go up and down completely randomly.

Pair Corralation between Avoca LLC and Arkema SA

Given the investment horizon of 90 days Avoca LLC is expected to generate 3.41 times more return on investment than Arkema SA. However, Avoca LLC is 3.41 times more volatile than Arkema SA. It trades about 0.02 of its potential returns per unit of risk. Arkema SA is currently generating about 0.01 per unit of risk. If you would invest  149,800  in Avoca LLC on September 3, 2024 and sell it today you would lose (22,300) from holding Avoca LLC or give up 14.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	63.64%
Values	Daily Returns

Avoca LLC  vs.  Arkema SA

Avoca LLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avoca LLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avoca LLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Arkema SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkema SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Arkema SA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Avoca LLC and Arkema SA

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

The idea behind Avoca LLC and Arkema SA 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.