Correlation Between Cathedral Energy and Avalon Advanced

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Can any of the company-specific risk be diversified away by investing in both Cathedral Energy and Avalon Advanced 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 Cathedral Energy and Avalon Advanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathedral Energy Services and Avalon Advanced Materials, you can compare the effects of market volatilities on Cathedral Energy and Avalon Advanced 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 Cathedral Energy with a short position of Avalon Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathedral Energy and Avalon Advanced.

Diversification Opportunities for Cathedral Energy and Avalon Advanced

-0.64
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Cathedral and Avalon is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cathedral Energy Services and Avalon Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalon Advanced Materials and Cathedral Energy 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 Cathedral Energy Services are associated (or correlated) with Avalon Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalon Advanced Materials has no effect on the direction of Cathedral Energy i.e., Cathedral Energy and Avalon Advanced go up and down completely randomly.

Pair Corralation between Cathedral Energy and Avalon Advanced

Assuming the 90 days trading horizon Cathedral Energy Services is expected to generate 0.29 times more return on investment than Avalon Advanced. However, Cathedral Energy Services is 3.47 times less risky than Avalon Advanced. It trades about 0.07 of its potential returns per unit of risk. Avalon Advanced Materials is currently generating about -0.07 per unit of risk. If you would invest  87.00  in Cathedral Energy Services on January 17, 2024 and sell it today you would earn a total of  2.00  from holding Cathedral Energy Services or generate 2.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Cathedral Energy Services  vs.  Avalon Advanced Materials

 Performance 
       Timeline  
Cathedral Energy Services 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Cathedral Energy Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Cathedral Energy displayed solid returns over the last few months and may actually be approaching a breakup point.
Avalon Advanced Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Avalon Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Cathedral Energy and Avalon Advanced Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cathedral Energy and Avalon Advanced

The main advantage of trading using opposite Cathedral Energy and Avalon Advanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathedral Energy position performs unexpectedly, Avalon Advanced 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 Avalon Advanced will offset losses from the drop in Avalon Advanced's long position.
The idea behind Cathedral Energy Services and Avalon Advanced Materials 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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