Can any of the company-specific risk be diversified away by investing in both Outbrain and Arena Group 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 Outbrain and Arena Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Outbrain and Arena Group Holdings, you can compare the effects of market volatilities on Outbrain and Arena Group 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 Outbrain with a short position of Arena Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Outbrain and Arena Group.
Diversification Opportunities for Outbrain and Arena Group
The 3 months correlation between Outbrain and Arena is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Outbrain and Arena Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arena Group Holdings and Outbrain 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 Outbrain are associated (or correlated) with Arena Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arena Group Holdings has no effect on the direction of Outbrain i.e., Outbrain and Arena Group go up and down completely randomly.
Allowing for the 90-day total investment horizon Outbrain is expected to generate 14.33 times less return on investment than Arena Group. But when comparing it to its historical volatility, Outbrain is 1.79 times less risky than Arena Group. It trades about 0.02 of its potential returns per unit of risk. Arena Group Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 354.00 in Arena Group Holdings on June 27, 2023 and sell it today you would earn a total of 83.00 from holding Arena Group Holdings or generate 23.45% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Outbrain are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Outbrain is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days Arena Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Arena Group is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.
The main advantage of trading using opposite Outbrain and Arena Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Outbrain position performs unexpectedly, Arena Group 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 Arena Group will offset losses from the drop in Arena Group's long position.
The idea behind Outbrain and Arena Group 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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