Correlation Between ABC Arbitrage and ST Dupont

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

By analyzing existing cross correlation between ABC arbitrage SA and ST Dupont, you can compare the effects of market volatilities on ABC Arbitrage and ST Dupont 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 ABC Arbitrage with a short position of ST Dupont. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Arbitrage and ST Dupont.

Diversification Opportunities for ABC Arbitrage and ST Dupont

0.84

Correlation Coefficient

ABC Arbitrage  ST Dupont

Very poor diversification

The 3 months correlation between ABC and DPT is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding ABC arbitrage SA and ST Dupont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ST Dupont and ABC Arbitrage 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 ABC arbitrage SA are associated (or correlated) with ST Dupont. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ST Dupont has no effect on the direction of ABC Arbitrage i.e., ABC Arbitrage and ST Dupont go up and down completely randomly.

Pair Corralation between ABC Arbitrage and ST Dupont

Assuming the 90 days trading horizon ABC arbitrage SA is expected to under-perform the ST Dupont. But the stock apears to be less risky and, when comparing its historical volatility, ABC arbitrage SA is 2.77 times less risky than ST Dupont. The stock trades about -0.02 of its potential returns per unit of risk. The ST Dupont is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  13.00  in ST Dupont on September 29, 2024 and sell it today you would lose (5.10) from holding ST Dupont or give up 39.23% of portfolio value over 90 days.

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

ABC arbitrage SA  vs.  ST Dupont

ABC arbitrage SA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABC arbitrage SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABC Arbitrage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ST Dupont

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ST Dupont are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ST Dupont sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC Arbitrage and ST Dupont

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

The idea behind ABC arbitrage SA and ST Dupont 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.