Correlation Between ARK and BTS

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

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

Diversification Opportunities for ARK and BTS

0.06

Correlation Coefficient

ARK  BTS

Significant diversification

The 3 months correlation between ARK and BTS is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding ARK and BTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTS and ARK 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 ARK are associated (or correlated) with BTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTS has no effect on the direction of ARK i.e., ARK and BTS go up and down completely randomly.

Pair Corralation between ARK and BTS

Assuming the 90 days trading horizon ARK is expected to generate 1.44 times more return on investment than BTS. However, ARK is 1.44 times more volatile than BTS. It trades about 0.36 of its potential returns per unit of risk. BTS is currently generating about 0.38 per unit of risk. If you would invest  47.00  in ARK on September 1, 2024 and sell it today you would earn a total of  26.00  from holding ARK or generate 55.32% return on investment over 90 days.

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

ARK  vs.  BTS

ARK

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ARK are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, ARK exhibited solid returns over the last few months and may actually be approaching a breakup point.

BTS

Risk-Adjusted Performance

4 of 100

Modest

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

Pair Trading with ARK and BTS

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

The idea behind ARK and BTS 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.