Correlation Between Avi and BAB

Can any of the company-specific risk be diversified away by investing in both Avi and BAB 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 BAB 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 BAB Inc, you can compare the effects of market volatilities on Avi and BAB 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 BAB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avi and BAB.

Diversification Opportunities for Avi and BAB

0.47

Correlation Coefficient

Avi  BAB

Very weak diversification

The 3 months correlation between Avi and BAB is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Avi Ltd ADR and BAB Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAB Inc 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 BAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAB Inc has no effect on the direction of Avi i.e., Avi and BAB go up and down completely randomly.

Pair Corralation between Avi and BAB

Assuming the 90 days horizon Avi Ltd ADR is expected to generate 1.8 times more return on investment than BAB. However, Avi is 1.8 times more volatile than BAB Inc. It trades about 0.09 of its potential returns per unit of risk. BAB Inc is currently generating about 0.06 per unit of risk. If you would invest  2,222  in Avi Ltd ADR on September 12, 2024 and sell it today you would earn a total of  588.00  from holding Avi Ltd ADR or generate 26.46% return on investment over 90 days.

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

Avi Ltd ADR  vs.  BAB Inc

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.

BAB Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BAB Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, BAB sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avi and BAB

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

The idea behind Avi Ltd ADR and BAB Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.