Correlation Between Doman Building and Avalon Advanced

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

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

Diversification Opportunities for Doman Building and Avalon Advanced

0.58

Correlation Coefficient

Doman Building  Avalon Advanced

Very weak diversification

The 3 months correlation between Doman and Avalon is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Doman Building Materials 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 Doman Building 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 Doman Building Materials 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 Doman Building i.e., Doman Building and Avalon Advanced go up and down completely randomly.

Pair Corralation between Doman Building and Avalon Advanced

Assuming the 90 days horizon Doman Building is expected to generate 2.53 times less return on investment than Avalon Advanced. But when comparing it to its historical volatility, Doman Building Materials is 1.54 times less risky than Avalon Advanced. It trades about 0.03 of its potential returns per unit of risk. Avalon Advanced Materials is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8.56  in Avalon Advanced Materials on January 25, 2024 and sell it today you would earn a total of  2.44  from holding Avalon Advanced Materials or generate 28.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	34.08%
Values	Daily Returns

Doman Building Materials  vs.  Avalon Advanced Materials

Doman Building Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Doman Building Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Doman Building is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Avalon Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avalon Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Avalon Advanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Doman Building and Avalon Advanced

The main advantage of trading using opposite Doman Building and Avalon Advanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Doman Building 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 Doman Building Materials 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.