Correlation Between EBay and AeroVironment

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Can any of the company-specific risk be diversified away by investing in both EBay and AeroVironment 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 EBay and AeroVironment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between eBay Inc and AeroVironment, you can compare the effects of market volatilities on EBay and AeroVironment 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 EBay with a short position of AeroVironment. Check out your portfolio center. Please also check ongoing floating volatility patterns of EBay and AeroVironment.

Diversification Opportunities for EBay and AeroVironment

-0.63
  Correlation Coefficient

Excellent diversification

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

Pair Corralation between EBay and AeroVironment

Assuming the 90 days trading horizon EBay is expected to generate 3.64 times less return on investment than AeroVironment. In addition to that, EBay is 1.75 times more volatile than AeroVironment. It trades about 0.06 of its total potential returns per unit of risk. AeroVironment is currently generating about 0.38 per unit of volatility. If you would invest  15,000  in AeroVironment on October 25, 2024 and sell it today you would earn a total of  1,820  from holding AeroVironment or generate 12.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

eBay Inc  vs.  AeroVironment

 Performance 
       Timeline  
eBay Inc 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in eBay Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, EBay may actually be approaching a critical reversion point that can send shares even higher in February 2025.
AeroVironment 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

EBay and AeroVironment Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with EBay and AeroVironment

The main advantage of trading using opposite EBay and AeroVironment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EBay position performs unexpectedly, AeroVironment 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 AeroVironment will offset losses from the drop in AeroVironment's long position.
The idea behind eBay Inc and AeroVironment 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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