Correlation Between AVE SA and Wool Industry

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

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

Diversification Opportunities for AVE SA and Wool Industry

0.77

Correlation Coefficient

AVE SA  Wool Industry

Poor diversification

The 3 months correlation between AVE and Wool is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding AVE SA and Wool Industry Tria in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wool Industry Tria and AVE SA 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 AVE SA are associated (or correlated) with Wool Industry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wool Industry Tria has no effect on the direction of AVE SA i.e., AVE SA and Wool Industry go up and down completely randomly.

Pair Corralation between AVE SA and Wool Industry

Assuming the 90 days trading horizon AVE SA is expected to generate 2.97 times less return on investment than Wool Industry. But when comparing it to its historical volatility, AVE SA is 2.26 times less risky than Wool Industry. It trades about 0.12 of its potential returns per unit of risk. Wool Industry Tria is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  500.00  in Wool Industry Tria on April 24, 2025 and sell it today you would earn a total of  280.00  from holding Wool Industry Tria or generate 56.0% return on investment over 90 days.

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

AVE SA  vs.  Wool Industry Tria

AVE SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AVE SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, AVE SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Wool Industry Tria

Risk-Adjusted Performance

Good

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

Pair Trading with AVE SA and Wool Industry

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

The idea behind AVE SA and Wool Industry Tria 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.