Correlation Between Arkham and Orbs

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

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

Diversification Opportunities for Arkham and Orbs

0.6

Correlation Coefficient

Arkham  Orbs

Poor diversification

The 3 months correlation between Arkham and Orbs is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Arkham and Orbs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orbs and Arkham 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 Arkham are associated (or correlated) with Orbs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orbs has no effect on the direction of Arkham i.e., Arkham and Orbs go up and down completely randomly.

Pair Corralation between Arkham and Orbs

Assuming the 90 days trading horizon Arkham is expected to generate 1.43 times more return on investment than Orbs. However, Arkham is 1.43 times more volatile than Orbs. It trades about 0.22 of its potential returns per unit of risk. Orbs is currently generating about 0.18 per unit of risk. If you would invest  99.00  in Arkham on September 3, 2024 and sell it today you would earn a total of  127.00  from holding Arkham or generate 128.28% return on investment over 90 days.

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

Arkham  vs.  Orbs

Arkham

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arkham are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Arkham exhibited solid returns over the last few months and may actually be approaching a breakup point.

Orbs

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orbs are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Orbs exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arkham and Orbs

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

The idea behind Arkham and Orbs 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.