Correlation Between Body and Avicanna

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

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

Diversification Opportunities for Body and Avicanna

-0.44

Correlation Coefficient

Body  Avicanna

Very good diversification

The 3 months correlation between Body and Avicanna is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Body And Mind and Avicanna in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avicanna and Body 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 Body And Mind are associated (or correlated) with Avicanna. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avicanna has no effect on the direction of Body i.e., Body and Avicanna go up and down completely randomly.

Pair Corralation between Body and Avicanna

Given the investment horizon of 90 days Body And Mind is expected to generate 3.3 times more return on investment than Avicanna. However, Body is 3.3 times more volatile than Avicanna. It trades about 0.07 of its potential returns per unit of risk. Avicanna is currently generating about 0.05 per unit of risk. If you would invest  1.24  in Body And Mind on December 29, 2024 and sell it today you would lose (0.46) from holding Body And Mind or give up 37.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	54.1%
Values	Daily Returns

Body And Mind  vs.  Avicanna

Body And Mind

Risk-Adjusted Performance

Modest

Over the last 90 days Body And Mind has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively fragile primary indicators, Body revealed solid returns over the last few months and may actually be approaching a breakup point.

Avicanna

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avicanna are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Avicanna reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Body and Avicanna

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

The idea behind Body And Mind and Avicanna 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.