Correlation Between Arconic and ESAB Corp

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

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

Diversification Opportunities for Arconic and ESAB Corp

0.96

Correlation Coefficient

Arconic  ESAB Corp

Almost no diversification

The 3 months correlation between Arconic and ESAB is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Arconic and ESAB Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESAB Corp and Arconic 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 Arconic are associated (or correlated) with ESAB Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESAB Corp has no effect on the direction of Arconic i.e., Arconic and ESAB Corp go up and down completely randomly.

Pair Corralation between Arconic and ESAB Corp

If you would invest  2,999  in Arconic on January 20, 2024 and sell it today you would earn a total of  0.00  from holding Arconic or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	4.55%
Values	Daily Returns

Arconic  vs.  ESAB Corp

Arconic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arconic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Arconic is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

ESAB Corp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ESAB Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, ESAB Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arconic and ESAB Corp

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

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