Correlation Between Arbitrum and SUN

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

By analyzing existing cross correlation between Arbitrum and SUN, you can compare the effects of market volatilities on Arbitrum and SUN 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 SUN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arbitrum and SUN.

Diversification Opportunities for Arbitrum and SUN

-0.01

Correlation Coefficient

Arbitrum  SUN

Good diversification

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

Pair Corralation between Arbitrum and SUN

Assuming the 90 days trading horizon Arbitrum is expected to generate 0.97 times more return on investment than SUN. However, Arbitrum is 1.03 times less risky than SUN. It trades about 0.2 of its potential returns per unit of risk. SUN is currently generating about -0.04 per unit of risk. If you would invest  49.00  in Arbitrum on September 1, 2024 and sell it today you would earn a total of  44.00  from holding Arbitrum or generate 89.8% return on investment over 90 days.

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

Arbitrum  vs.  SUN

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.

SUN

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SUN has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for SUN shareholders.

Pair Trading with Arbitrum and SUN

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

The idea behind Arbitrum and SUN 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.