Correlation Between ARDR and CET

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

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

Diversification Opportunities for ARDR and CET

0.84

Correlation Coefficient

ARDR  CET

Very poor diversification

The 3 months correlation between ARDR and CET is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding ARDR and CET in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CET and ARDR 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 ARDR are associated (or correlated) with CET. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CET has no effect on the direction of ARDR i.e., ARDR and CET go up and down completely randomly.

Pair Corralation between ARDR and CET

Assuming the 90 days trading horizon ARDR is expected to under-perform the CET. In addition to that, ARDR is 2.44 times more volatile than CET. It trades about -0.02 of its total potential returns per unit of risk. CET is currently generating about -0.04 per unit of volatility. If you would invest  3.80  in CET on January 19, 2024 and sell it today you would lose (0.14) from holding CET or give up 3.68% of portfolio value over 90 days.

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

ARDR  vs.  CET

ARDR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ARDR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ARDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

CET

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CET are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CET exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ARDR and CET

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

The idea behind ARDR and CET 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.