Correlation Between Arbitrum and Gold Fields

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

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

Diversification Opportunities for Arbitrum and Gold Fields

-0.28

Correlation Coefficient

Arbitrum  Gold Fields

Very good diversification

The 3 months correlation between Arbitrum and Gold is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Arbitrum and Goldfinch in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Fields and Arbitrum 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 Arbitrum are associated (or correlated) with Gold Fields. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Fields has no effect on the direction of Arbitrum i.e., Arbitrum and Gold Fields go up and down completely randomly.

Pair Corralation between Arbitrum and Gold Fields

Assuming the 90 days trading horizon Arbitrum is expected to generate 0.94 times more return on investment than Gold Fields. However, Arbitrum is 1.06 times less risky than Gold Fields. It trades about 0.21 of its potential returns per unit of risk. Goldfinch is currently generating about 0.01 per unit of risk. If you would invest  49.00  in Arbitrum on September 2, 2024 and sell it today you would earn a total of  48.00  from holding Arbitrum or generate 97.96% return on investment over 90 days.

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

Arbitrum  vs.  Goldfinch

Arbitrum

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arbitrum are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Arbitrum exhibited solid returns over the last few months and may actually be approaching a breakup point.

Gold Fields

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Goldfinch are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Gold Fields is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Arbitrum and Gold Fields

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

The idea behind Arbitrum and Goldfinch 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.