Can any of the company-specific risk be diversified away by investing in both Everi Holdings and Arcos Dorados 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 Everi Holdings and Arcos Dorados into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Everi Holdings and Arcos Dorados Holdings, you can compare the effects of market volatilities on Everi Holdings and Arcos Dorados 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 Everi Holdings with a short position of Arcos Dorados. Check out your portfolio center. Please also check ongoing floating volatility patterns of Everi Holdings and Arcos Dorados.
Diversification Opportunities for Everi Holdings and Arcos Dorados
The 3 months correlation between Everi and Arcos is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Everi Holdings and Arcos Dorados Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arcos Dorados Holdings and Everi Holdings 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 Everi Holdings are associated (or correlated) with Arcos Dorados. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arcos Dorados Holdings has no effect on the direction of Everi Holdings i.e., Everi Holdings and Arcos Dorados go up and down completely randomly.
Pair Corralation between Everi Holdings and Arcos Dorados
Given the investment horizon of 90 days Everi Holdings is expected to generate 0.96 times more return on investment than Arcos Dorados. However, Everi Holdings is 1.05 times less risky than Arcos Dorados. It trades about -0.08 of its potential returns per unit of risk. Arcos Dorados Holdings is currently generating about -0.16 per unit of risk. If you would invest 1,403 in Everi Holdings on June 28, 2023 and sell it today you would lose (42.00) from holding Everi Holdings or give up 2.99% of portfolio value over 90 days.
Over the last 90 days Everi Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Everi Holdings is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.
Over the last 90 days Arcos Dorados Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Arcos Dorados is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the insiders.
Everi Holdings and Arcos Dorados Volatility Contrast
Predicted Return Density
Pair Trading with Everi Holdings and Arcos Dorados
The main advantage of trading using opposite Everi Holdings and Arcos Dorados positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Everi Holdings position performs unexpectedly, Arcos Dorados 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 Arcos Dorados will offset losses from the drop in Arcos Dorados' long position.
The idea behind Everi Holdings and Arcos Dorados Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
Avoid under-diversification and over-optimization by backtesting your portfolios
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions