Correlation Between Arch Resources and Compania

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

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

Diversification Opportunities for Arch Resources and Compania

-0.3

Correlation Coefficient

Arch Resources  Compania

Very good diversification

The 3 months correlation between Arch and Compania is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Arch Resources and Compania de Minas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania de Minas and Arch Resources 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 Arch Resources are associated (or correlated) with Compania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania de Minas has no effect on the direction of Arch Resources i.e., Arch Resources and Compania go up and down completely randomly.

Pair Corralation between Arch Resources and Compania

Given the investment horizon of 90 days Arch Resources is expected to generate 0.85 times more return on investment than Compania. However, Arch Resources is 1.17 times less risky than Compania. It trades about -0.01 of its potential returns per unit of risk. Compania de Minas is currently generating about -0.2 per unit of risk. If you would invest  16,417  in Arch Resources on January 19, 2024 and sell it today you would lose (135.00) from holding Arch Resources or give up 0.82% of portfolio value over 90 days.

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

Arch Resources  vs.  Compania de Minas

Arch Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arch Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Compania de Minas

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Minas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Compania is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Arch Resources and Compania

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

The idea behind Arch Resources and Compania de Minas 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.