Correlation Between Avis Budget and Cleveland Cliffs

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

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

Diversification Opportunities for Avis Budget and Cleveland Cliffs

0.36

Correlation Coefficient

Avis Budget  Cleveland Cliffs

Weak diversification

The 3 months correlation between Avis and Cleveland is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Avis Budget Group and Cleveland Cliffs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cleveland Cliffs and Avis Budget 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 Avis Budget Group are associated (or correlated) with Cleveland Cliffs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cleveland Cliffs has no effect on the direction of Avis Budget i.e., Avis Budget and Cleveland Cliffs go up and down completely randomly.

Pair Corralation between Avis Budget and Cleveland Cliffs

Assuming the 90 days trading horizon Avis Budget Group is expected to under-perform the Cleveland Cliffs. In addition to that, Avis Budget is 1.22 times more volatile than Cleveland Cliffs. It trades about -0.01 of its total potential returns per unit of risk. Cleveland Cliffs is currently generating about 0.0 per unit of volatility. If you would invest  32,760  in Cleveland Cliffs on March 18, 2024 and sell it today you would lose (5,099) from holding Cleveland Cliffs or give up 15.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.63%
Values	Daily Returns

Avis Budget Group  vs.  Cleveland Cliffs

Avis Budget Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avis Budget Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Avis Budget is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cleveland Cliffs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cleveland Cliffs has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Cleveland Cliffs is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Avis Budget and Cleveland Cliffs

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

The idea behind Avis Budget Group and Cleveland Cliffs 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.