Correlation Between Avalanche and Stacks

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

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

Diversification Opportunities for Avalanche and Stacks

0.88

Correlation Coefficient

Avalanche  Stacks

Very poor diversification

The 3 months correlation between Avalanche and Stacks is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Avalanche and Stacks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stacks 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 Stacks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stacks has no effect on the direction of Avalanche i.e., Avalanche and Stacks go up and down completely randomly.

Pair Corralation between Avalanche and Stacks

Assuming the 90 days trading horizon Avalanche is expected to generate 0.87 times more return on investment than Stacks. However, Avalanche is 1.15 times less risky than Stacks. It trades about 0.04 of its potential returns per unit of risk. Stacks is currently generating about 0.03 per unit of risk. If you would invest  2,212  in Avalanche on April 20, 2025 and sell it today you would earn a total of  130.00  from holding Avalanche or generate 5.88% return on investment over 90 days.

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

Avalanche  vs.  Stacks

Avalanche

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Avalanche may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Stacks

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stacks are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Stacks may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Avalanche and Stacks

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

The idea behind Avalanche and Stacks 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.