Correlation Between Avalanche and REN

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

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

Diversification Opportunities for Avalanche and REN

0.8

Correlation Coefficient

Avalanche  REN

Very poor diversification

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

Pair Corralation between Avalanche and REN

Assuming the 90 days trading horizon Avalanche is expected to under-perform the REN. But the crypto coin apears to be less risky and, when comparing its historical volatility, Avalanche is 1.33 times less risky than REN. The crypto coin trades about -0.31 of its potential returns per unit of risk. The REN is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  9.94  in REN on January 28, 2024 and sell it today you would lose (3.61) from holding REN or give up 36.32% of portfolio value over 90 days.

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

Avalanche  vs.  REN

Avalanche

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Avalanche may actually be approaching a critical reversion point that can send shares even higher in May 2024.

REN

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in REN are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, REN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avalanche and REN

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

The idea behind Avalanche and REN 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..