Correlation Between Aave and Reitmans

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

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

Diversification Opportunities for Aave and Reitmans

-0.25

Correlation Coefficient

Aave  Reitmans

Very good diversification

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

Pair Corralation between Aave and Reitmans

Assuming the 90 days trading horizon Aave is expected to generate 2.23 times more return on investment than Reitmans. However, Aave is 2.23 times more volatile than Reitmans Limited. It trades about 0.05 of its potential returns per unit of risk. Reitmans Limited is currently generating about 0.05 per unit of risk. If you would invest  8,013  in Aave on January 25, 2024 and sell it today you would earn a total of  1,454  from holding Aave or generate 18.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.85%
Values	Daily Returns

Aave  vs.  Reitmans Limited

Aave

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aave are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Aave exhibited solid returns over the last few months and may actually be approaching a breakup point.

Reitmans Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reitmans Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Aave and Reitmans

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

The idea behind Aave and Reitmans Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.