Correlation Between REX American and Avantor

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

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

Diversification Opportunities for REX American and Avantor

0.03

Correlation Coefficient

REX American  Avantor

Significant diversification

The 3 months correlation between REX and Avantor is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding REX American Resources and Avantor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantor and REX American 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 REX American Resources are associated (or correlated) with Avantor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantor has no effect on the direction of REX American i.e., REX American and Avantor go up and down completely randomly.

Pair Corralation between REX American and Avantor

Considering the 90-day investment horizon REX American Resources is expected to generate 0.92 times more return on investment than Avantor. However, REX American Resources is 1.09 times less risky than Avantor. It trades about 0.27 of its potential returns per unit of risk. Avantor is currently generating about 0.1 per unit of risk. If you would invest  4,272  in REX American Resources on July 2, 2024 and sell it today you would earn a total of  357.00  from holding REX American Resources or generate 8.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

REX American Resources  vs.  Avantor

REX American Resources

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in REX American Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, REX American is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Avantor

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avantor are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Avantor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with REX American and Avantor

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

The idea behind REX American Resources and Avantor 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.