Correlation Between Avista and Otter Tail

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

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

Diversification Opportunities for Avista and Otter Tail

0.24

Correlation Coefficient

Avista  Otter Tail

Modest diversification

The 3 months correlation between Avista and Otter is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Avista and Otter Tail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otter Tail and Avista 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 Avista are associated (or correlated) with Otter Tail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otter Tail has no effect on the direction of Avista i.e., Avista and Otter Tail go up and down completely randomly.

Pair Corralation between Avista and Otter Tail

Considering the 90-day investment horizon Avista is expected to generate 0.79 times more return on investment than Otter Tail. However, Avista is 1.27 times less risky than Otter Tail. It trades about 0.57 of its potential returns per unit of risk. Otter Tail is currently generating about 0.39 per unit of risk. If you would invest  3,384  in Avista on February 15, 2024 and sell it today you would earn a total of  457.00  from holding Avista or generate 13.5% return on investment over 90 days.

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

Avista  vs.  Otter Tail

Avista

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avista are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Avista sustained solid returns over the last few months and may actually be approaching a breakup point.

Otter Tail

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Otter Tail are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Otter Tail is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Avista and Otter Tail

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

The idea behind Avista and Otter Tail 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.