Correlation Between ARC Resources and Hemisphere Energy

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

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

Diversification Opportunities for ARC Resources and Hemisphere Energy

0.93

Correlation Coefficient

ARC Resources  Hemisphere Energy

Almost no diversification

The 3 months correlation between ARC and Hemisphere is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding ARC Resources and Hemisphere Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hemisphere Energy and ARC 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 ARC Resources are associated (or correlated) with Hemisphere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hemisphere Energy has no effect on the direction of ARC Resources i.e., ARC Resources and Hemisphere Energy go up and down completely randomly.

Pair Corralation between ARC Resources and Hemisphere Energy

Assuming the 90 days trading horizon ARC Resources is expected to generate 1.63 times less return on investment than Hemisphere Energy. In addition to that, ARC Resources is 1.02 times more volatile than Hemisphere Energy. It trades about 0.18 of its total potential returns per unit of risk. Hemisphere Energy is currently generating about 0.3 per unit of volatility. If you would invest  133.00  in Hemisphere Energy on January 25, 2024 and sell it today you would earn a total of  41.00  from holding Hemisphere Energy or generate 30.83% return on investment over 90 days.

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

ARC Resources  vs.  Hemisphere Energy

ARC Resources

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ARC Resources are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, ARC Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Hemisphere Energy

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hemisphere Energy are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hemisphere Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ARC Resources and Hemisphere Energy

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

The idea behind ARC Resources and Hemisphere Energy 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.