Correlation Between Tandem Diabetes and Avis Budget

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

By analyzing existing cross correlation between Tandem Diabetes Care and Avis Budget Group, you can compare the effects of market volatilities on Tandem Diabetes and Avis Budget 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 Tandem Diabetes with a short position of Avis Budget. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tandem Diabetes and Avis Budget.

Diversification Opportunities for Tandem Diabetes and Avis Budget

0.8

Correlation Coefficient

Tandem Diabetes  Avis Budget

Very poor diversification

The 3 months correlation between Tandem and Avis is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Tandem Diabetes Care and Avis Budget Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avis Budget Group and Tandem Diabetes 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 Tandem Diabetes Care are associated (or correlated) with Avis Budget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avis Budget Group has no effect on the direction of Tandem Diabetes i.e., Tandem Diabetes and Avis Budget go up and down completely randomly.

Pair Corralation between Tandem Diabetes and Avis Budget

Given the investment horizon of 90 days Tandem Diabetes Care is expected to under-perform the Avis Budget. In addition to that, Tandem Diabetes is 1.32 times more volatile than Avis Budget Group. It trades about -0.16 of its total potential returns per unit of risk. Avis Budget Group is currently generating about -0.08 per unit of volatility. If you would invest  7,886  in Avis Budget Group on December 28, 2024 and sell it today you would lose (1,731) from holding Avis Budget Group or give up 21.95% of portfolio value over 90 days.

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

Tandem Diabetes Care  vs.  Avis Budget Group

Tandem Diabetes Care

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tandem Diabetes Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Avis Budget Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avis Budget Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Tandem Diabetes and Avis Budget

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

The idea behind Tandem Diabetes Care and Avis Budget Group 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.