Correlation Between AbcamPLC and ARCA Biopharma

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

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

Diversification Opportunities for AbcamPLC and ARCA Biopharma

0.9

Correlation Coefficient

AbcamPLC  ARCA Biopharma

Almost no diversification

The 3 months correlation between AbcamPLC and ARCA is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding AbcamPLC and ARCA Biopharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Biopharma and AbcamPLC 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 AbcamPLC are associated (or correlated) with ARCA Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Biopharma has no effect on the direction of AbcamPLC i.e., AbcamPLC and ARCA Biopharma go up and down completely randomly.

Pair Corralation between AbcamPLC and ARCA Biopharma

Given the investment horizon of 90 days AbcamPLC is expected to generate 4.54 times less return on investment than ARCA Biopharma. But when comparing it to its historical volatility, AbcamPLC is 10.67 times less risky than ARCA Biopharma. It trades about 0.22 of its potential returns per unit of risk. ARCA Biopharma is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  187.00  in ARCA Biopharma on January 25, 2024 and sell it today you would earn a total of  176.00  from holding ARCA Biopharma or generate 94.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	22.76%
Values	Daily Returns

AbcamPLC  vs.  ARCA Biopharma

AbcamPLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AbcamPLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, AbcamPLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

ARCA Biopharma

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ARCA Biopharma are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, ARCA Biopharma displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AbcamPLC and ARCA Biopharma

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

The idea behind AbcamPLC and ARCA Biopharma 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 Transaction History module to view history of all your transactions and understand their impact on performance.