Correlation Between SAL Steel and AVALON TECHNOLOGIES

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

By analyzing existing cross correlation between SAL Steel Limited and AVALON TECHNOLOGIES LTD, you can compare the effects of market volatilities on SAL Steel and AVALON TECHNOLOGIES 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 SAL Steel with a short position of AVALON TECHNOLOGIES. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAL Steel and AVALON TECHNOLOGIES.

Diversification Opportunities for SAL Steel and AVALON TECHNOLOGIES

-0.25

Correlation Coefficient

SAL Steel  AVALON TECHNOLOGIES

Very good diversification

The 3 months correlation between SAL and AVALON is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding SAL Steel Limited and AVALON TECHNOLOGIES LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVALON TECHNOLOGIES LTD and SAL Steel 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 SAL Steel Limited are associated (or correlated) with AVALON TECHNOLOGIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVALON TECHNOLOGIES LTD has no effect on the direction of SAL Steel i.e., SAL Steel and AVALON TECHNOLOGIES go up and down completely randomly.

Pair Corralation between SAL Steel and AVALON TECHNOLOGIES

Assuming the 90 days trading horizon SAL Steel is expected to generate 5.02 times less return on investment than AVALON TECHNOLOGIES. But when comparing it to its historical volatility, SAL Steel Limited is 1.27 times less risky than AVALON TECHNOLOGIES. It trades about 0.06 of its potential returns per unit of risk. AVALON TECHNOLOGIES LTD is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  52,035  in AVALON TECHNOLOGIES LTD on September 5, 2024 and sell it today you would earn a total of  39,610  from holding AVALON TECHNOLOGIES LTD or generate 76.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

SAL Steel Limited  vs.  AVALON TECHNOLOGIES LTD

SAL Steel Limited

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SAL Steel Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, SAL Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AVALON TECHNOLOGIES LTD

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AVALON TECHNOLOGIES LTD are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady essential indicators, AVALON TECHNOLOGIES sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SAL Steel and AVALON TECHNOLOGIES

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

The idea behind SAL Steel Limited and AVALON TECHNOLOGIES LTD 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.