Correlation Between Avalon Holdings and Montrose Environmental

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

By analyzing existing cross correlation between Avalon Holdings and Montrose Environmental Grp, you can compare the effects of market volatilities on Avalon Holdings and Montrose Environmental 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 Avalon Holdings with a short position of Montrose Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avalon Holdings and Montrose Environmental.

Diversification Opportunities for Avalon Holdings and Montrose Environmental

0.63

Correlation Coefficient

Avalon Holdings  Montrose Environmental

Poor diversification

The 3 months correlation between Avalon and Montrose is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Avalon Holdings and Montrose Environmental Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montrose Environmental and Avalon Holdings 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 Avalon Holdings are associated (or correlated) with Montrose Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montrose Environmental has no effect on the direction of Avalon Holdings i.e., Avalon Holdings and Montrose Environmental go up and down completely randomly.

Pair Corralation between Avalon Holdings and Montrose Environmental

Considering the 90-day investment horizon Avalon Holdings is expected to generate 0.67 times more return on investment than Montrose Environmental. However, Avalon Holdings is 1.48 times less risky than Montrose Environmental. It trades about -0.05 of its potential returns per unit of risk. Montrose Environmental Grp is currently generating about -0.04 per unit of risk. If you would invest  348.00  in Avalon Holdings on December 28, 2024 and sell it today you would lose (53.00) from holding Avalon Holdings or give up 15.23% of portfolio value over 90 days.

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

Avalon Holdings  vs.  Montrose Environmental Grp

Avalon Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avalon Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Montrose Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Montrose Environmental Grp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Avalon Holdings and Montrose Environmental

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

The idea behind Avalon Holdings and Montrose Environmental Grp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.