Correlation Between ARK and ARDR

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

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

Diversification Opportunities for ARK and ARDR

0.78

Correlation Coefficient

ARK  ARDR

Poor diversification

The 3 months correlation between ARK and ARDR is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ARK and ARDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARDR and ARK 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 ARK are associated (or correlated) with ARDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARDR has no effect on the direction of ARK i.e., ARK and ARDR go up and down completely randomly.

Pair Corralation between ARK and ARDR

Assuming the 90 days trading horizon ARK is expected to under-perform the ARDR. But the crypto coin apears to be less risky and, when comparing its historical volatility, ARK is 1.3 times less risky than ARDR. The crypto coin trades about -0.26 of its potential returns per unit of risk. The ARDR is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  12.00  in ARDR on January 20, 2024 and sell it today you would lose (2.00) from holding ARDR or give up 16.67% of portfolio value over 90 days.

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

ARK  vs.  ARDR

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.

ARDR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ARDR are ranked lower than 6 (%) 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.

Pair Trading with ARK and ARDR

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

The idea behind ARK and ARDR 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.