Correlation Between ArcBlock and BCD

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

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

Diversification Opportunities for ArcBlock and BCD

0.01

Correlation Coefficient

ArcBlock  BCD

Significant diversification

The 3 months correlation between ArcBlock and BCD is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding ArcBlock and BCD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCD and ArcBlock 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 ArcBlock are associated (or correlated) with BCD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCD has no effect on the direction of ArcBlock i.e., ArcBlock and BCD go up and down completely randomly.

Pair Corralation between ArcBlock and BCD

Assuming the 90 days trading horizon ArcBlock is expected to generate 1.33 times less return on investment than BCD. But when comparing it to its historical volatility, ArcBlock is 1.41 times less risky than BCD. It trades about 0.06 of its potential returns per unit of risk. BCD is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7.13  in BCD on September 3, 2024 and sell it today you would earn a total of  0.68  from holding BCD or generate 9.54% return on investment over 90 days.

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

ArcBlock  vs.  BCD

ArcBlock

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ArcBlock are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ArcBlock exhibited solid returns over the last few months and may actually be approaching a breakup point.

BCD

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BCD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, BCD exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ArcBlock and BCD

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

The idea behind ArcBlock and BCD 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.