Correlation Between ARC Resources and Alamos Gold

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

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

Diversification Opportunities for ARC Resources and Alamos Gold

-0.6

Correlation Coefficient

ARC Resources  Alamos Gold

Excellent diversification

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

Pair Corralation between ARC Resources and Alamos Gold

Assuming the 90 days trading horizon ARC Resources is expected to under-perform the Alamos Gold. But the stock apears to be less risky and, when comparing its historical volatility, ARC Resources is 1.32 times less risky than Alamos Gold. The stock trades about -0.04 of its potential returns per unit of risk. The Alamos Gold is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,579  in Alamos Gold on September 27, 2024 and sell it today you would earn a total of  60.00  from holding Alamos Gold or generate 2.33% return on investment over 90 days.

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

ARC Resources  vs.  Alamos Gold

ARC Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARC Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, ARC Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Alamos Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alamos Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Alamos Gold is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ARC Resources and Alamos Gold

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

The idea behind ARC Resources and Alamos Gold 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.