Correlation Between Arcosa and Skyline

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

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

Diversification Opportunities for Arcosa and Skyline

0.81

Correlation Coefficient

Arcosa  Skyline

Very poor diversification

The 3 months correlation between Arcosa and Skyline is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Arcosa Inc and Skyline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skyline and Arcosa 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 Arcosa Inc are associated (or correlated) with Skyline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skyline has no effect on the direction of Arcosa i.e., Arcosa and Skyline go up and down completely randomly.

Pair Corralation between Arcosa and Skyline

Considering the 90-day investment horizon Arcosa Inc is expected to generate 0.88 times more return on investment than Skyline. However, Arcosa Inc is 1.14 times less risky than Skyline. It trades about 0.27 of its potential returns per unit of risk. Skyline is currently generating about 0.14 per unit of risk. If you would invest  8,302  in Arcosa Inc on September 5, 2024 and sell it today you would earn a total of  2,578  from holding Arcosa Inc or generate 31.05% return on investment over 90 days.

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

Arcosa Inc  vs.  Skyline

Arcosa Inc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arcosa Inc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, Arcosa sustained solid returns over the last few months and may actually be approaching a breakup point.

Skyline

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Skyline are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, Skyline showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arcosa and Skyline

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

The idea behind Arcosa Inc and Skyline 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.