Correlation Between Avi and Associated British

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

By analyzing existing cross correlation between Avi Ltd ADR and Associated British Foods, you can compare the effects of market volatilities on Avi and Associated British 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 Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avi and Associated British.

Diversification Opportunities for Avi and Associated British

-0.45

Correlation Coefficient

Avi  Associated British

Very good diversification

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

Pair Corralation between Avi and Associated British

Assuming the 90 days horizon Avi Ltd ADR is expected to under-perform the Associated British. In addition to that, Avi is 3.21 times more volatile than Associated British Foods. It trades about -0.04 of its total potential returns per unit of risk. Associated British Foods is currently generating about -0.03 per unit of volatility. If you would invest  2,889  in Associated British Foods on September 12, 2024 and sell it today you would lose (40.00) from holding Associated British Foods or give up 1.38% of portfolio value over 90 days.

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

Avi Ltd ADR  vs.  Associated British Foods

Avi Ltd ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avi Ltd ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Avi showed solid returns over the last few months and may actually be approaching a breakup point.

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Associated British is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Avi and Associated British

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

The idea behind Avi Ltd ADR and Associated British Foods 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.