Correlation Between IAA and ARC Document

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

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

Diversification Opportunities for IAA and ARC Document

-0.61

Correlation Coefficient

IAA  ARC Document

Excellent diversification

The 3 months correlation between IAA and ARC is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding IAA Inc and ARC Document Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARC Document Solutions and IAA 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 IAA Inc are associated (or correlated) with ARC Document. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARC Document Solutions has no effect on the direction of IAA i.e., IAA and ARC Document go up and down completely randomly.

Pair Corralation between IAA and ARC Document

Considering the 90-day investment horizon IAA Inc is expected to generate 0.84 times more return on investment than ARC Document. However, IAA Inc is 1.19 times less risky than ARC Document. It trades about 0.05 of its potential returns per unit of risk. ARC Document Solutions is currently generating about 0.03 per unit of risk. If you would invest  3,391  in IAA Inc on January 25, 2024 and sell it today you would earn a total of  598.00  from holding IAA Inc or generate 17.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	39.56%
Values	Daily Returns

IAA Inc  vs.  ARC Document Solutions

IAA Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IAA Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IAA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ARC Document Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARC Document Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with IAA and ARC Document

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

The idea behind IAA Inc and ARC Document Solutions 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.