Correlation Between Avoca LLC and Covestro

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

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

Diversification Opportunities for Avoca LLC and Covestro

0.43

Correlation Coefficient

Avoca LLC  Covestro

Very weak diversification

The 3 months correlation between Avoca and Covestro is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Avoca LLC and Covestro AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covestro AG 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 Covestro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covestro AG has no effect on the direction of Avoca LLC i.e., Avoca LLC and Covestro go up and down completely randomly.

Pair Corralation between Avoca LLC and Covestro

Given the investment horizon of 90 days Avoca LLC is expected to under-perform the Covestro. In addition to that, Avoca LLC is 9.67 times more volatile than Covestro AG. It trades about -0.02 of its total potential returns per unit of risk. Covestro AG is currently generating about -0.12 per unit of volatility. If you would invest  6,365  in Covestro AG on October 27, 2024 and sell it today you would lose (266.00) from holding Covestro AG or give up 4.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.75%
Values	Daily Returns

Avoca LLC  vs.  Covestro AG

Avoca LLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avoca LLC has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Covestro AG

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Avoca LLC and Covestro

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

The idea behind Avoca LLC and Covestro AG 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.