Correlation Between Polygon and Avalanche

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

Diversification Opportunities for Polygon and Avalanche

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Polygon and Avalanche is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Polygon and Avalanche in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalanche and Polygon 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 Polygon are associated (or correlated) with Avalanche. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalanche has no effect on the direction of Polygon i.e., Polygon and Avalanche go up and down completely randomly.

Pair Corralation between Polygon and Avalanche

Assuming the 90 days trading horizon Polygon is expected to under-perform the Avalanche. In addition to that, Polygon is 1.16 times more volatile than Avalanche. It trades about -0.1 of its total potential returns per unit of risk. Avalanche is currently generating about -0.09 per unit of volatility. If you would invest  1,887  in Avalanche on July 3, 2022 and sell it today you would lose (176.00)  from holding Avalanche or give up 9.33% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Polygon  vs.  Avalanche

 Performance (%) 
       Timeline  
Polygon 
Polygon Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Polygon are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Polygon sustained solid returns over the last few months and may actually be approaching a breakup point.

Polygon Price Channel

Avalanche 
Avalanche Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Avalanche are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avalanche is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Avalanche Price Channel

Polygon and Avalanche Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Polygon and Avalanche

The main advantage of trading using opposite Polygon and Avalanche positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polygon position performs unexpectedly, Avalanche 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 Avalanche will offset losses from the drop in Avalanche's long position.
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The idea behind Polygon and Avalanche 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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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 Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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