Correlation Between ARK Next and Principal

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

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

Diversification Opportunities for ARK Next and Principal

0.96

Correlation Coefficient

ARK Next  Principal

Almost no diversification

The 3 months correlation between ARK and Principal is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding ARK Next Generation and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal and ARK Next 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 Next Generation are associated (or correlated) with Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of ARK Next i.e., ARK Next and Principal go up and down completely randomly.

Pair Corralation between ARK Next and Principal

If you would invest  8,410  in ARK Next Generation on September 19, 2024 and sell it today you would earn a total of  3,578  from holding ARK Next Generation or generate 42.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	1.59%
Values	Daily Returns

ARK Next Generation  vs.  Principal

ARK Next Generation

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Next Generation are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, ARK Next showed solid returns over the last few months and may actually be approaching a breakup point.

Principal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Principal is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ARK Next and Principal

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

The idea behind ARK Next Generation and Principal 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.