Correlation Between RWE AG and Avista

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

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

Diversification Opportunities for RWE AG and Avista

0.67

Correlation Coefficient

RWE AG  Avista

Poor diversification

The 3 months correlation between RWE and Avista is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG and Avista in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avista and RWE AG 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 RWE AG are associated (or correlated) with Avista. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avista has no effect on the direction of RWE AG i.e., RWE AG and Avista go up and down completely randomly.

Pair Corralation between RWE AG and Avista

Assuming the 90 days trading horizon RWE AG is expected to generate 0.98 times more return on investment than Avista. However, RWE AG is 1.02 times less risky than Avista. It trades about 0.16 of its potential returns per unit of risk. Avista is currently generating about 0.08 per unit of risk. If you would invest  2,883  in RWE AG on December 30, 2024 and sell it today you would earn a total of  429.00  from holding RWE AG or generate 14.88% return on investment over 90 days.

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

RWE AG  vs.  Avista

RWE AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RWE AG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, RWE AG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Avista

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avista are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Avista may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with RWE AG and Avista

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

The idea behind RWE AG and Avista 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.