Correlation Between ABBC and ARK

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

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

Diversification Opportunities for ABBC and ARK

0.01

Correlation Coefficient

ABBC  ARK

Significant diversification

The 3 months correlation between ABBC and ARK is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding ABBC and ARK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK and ABBC 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 ABBC are associated (or correlated) with ARK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK has no effect on the direction of ABBC i.e., ABBC and ARK go up and down completely randomly.

Pair Corralation between ABBC and ARK

Assuming the 90 days trading horizon ABBC is expected to under-perform the ARK. In addition to that, ABBC is 1.23 times more volatile than ARK. It trades about -0.24 of its total potential returns per unit of risk. ARK is currently generating about -0.26 per unit of volatility. If you would invest  105.00  in ARK on January 20, 2024 and sell it today you would lose (33.00) from holding ARK or give up 31.43% of portfolio value over 90 days.

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

ABBC  vs.  ARK

ABBC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABBC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for ABBC shareholders.

ARK

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ARK are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, ARK exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABBC and ARK

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

The idea behind ABBC and ARK 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.