Correlation Between ABM Industries and ARC Document

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

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

Diversification Opportunities for ABM Industries and ARC Document

0.61

Correlation Coefficient

ABM Industries  ARC Document

Poor diversification

The 3 months correlation between ABM and ARC is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding ABM Industries Incorporated 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 ABM Industries 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 ABM Industries Incorporated 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 ABM Industries i.e., ABM Industries and ARC Document go up and down completely randomly.

Pair Corralation between ABM Industries and ARC Document

Considering the 90-day investment horizon ABM Industries is expected to generate 1.34 times less return on investment than ARC Document. But when comparing it to its historical volatility, ABM Industries Incorporated is 1.22 times less risky than ARC Document. It trades about 0.04 of its potential returns per unit of risk. ARC Document Solutions is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  241.00  in ARC Document Solutions on September 14, 2024 and sell it today you would earn a total of  98.00  from holding ARC Document Solutions or generate 40.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.17%
Values	Daily Returns

ABM Industries Incorporated  vs.  ARC Document Solutions

ABM Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABM Industries Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental drivers, ABM Industries may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ARC Document Solutions

Risk-Adjusted Performance

0 of 100

Good

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 rather sound basic indicators, ARC Document is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ABM Industries and ARC Document

The main advantage of trading using opposite ABM Industries and ARC Document positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABM Industries 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 ABM Industries Incorporated 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.