Correlation Between ARCA Biopharma and Ameriprise Financial

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

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

Diversification Opportunities for ARCA Biopharma and Ameriprise Financial

0.43

Correlation Coefficient

ARCA Biopharma  Ameriprise Financial

Very weak diversification

The 3 months correlation between ARCA and Ameriprise is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding ARCA Biopharma and Ameriprise Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameriprise Financial and ARCA Biopharma 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 ARCA Biopharma are associated (or correlated) with Ameriprise Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameriprise Financial has no effect on the direction of ARCA Biopharma i.e., ARCA Biopharma and Ameriprise Financial go up and down completely randomly.

Pair Corralation between ARCA Biopharma and Ameriprise Financial

Given the investment horizon of 90 days ARCA Biopharma is expected to generate 20.14 times more return on investment than Ameriprise Financial. However, ARCA Biopharma is 20.14 times more volatile than Ameriprise Financial. It trades about 0.22 of its potential returns per unit of risk. Ameriprise Financial is currently generating about -0.15 per unit of risk. If you would invest  175.00  in ARCA Biopharma on January 20, 2024 and sell it today you would earn a total of  165.00  from holding ARCA Biopharma or generate 94.29% return on investment over 90 days.

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

ARCA Biopharma  vs.  Ameriprise Financial

ARCA Biopharma

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARCA Biopharma are ranked lower than 10 (%) 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.

Ameriprise Financial

Risk-Adjusted Performance

10 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ameriprise Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain primary indicators, Ameriprise Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with ARCA Biopharma and Ameriprise Financial

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

The idea behind ARCA Biopharma and Ameriprise Financial 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.