Correlation Between Core and Arbitrum

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

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

Diversification Opportunities for Core and Arbitrum

0.71

Correlation Coefficient

Core  Arbitrum

Poor diversification

The 3 months correlation between Core and Arbitrum is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Core and Arbitrum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrum and Core 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 Core are associated (or correlated) with Arbitrum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrum has no effect on the direction of Core i.e., Core and Arbitrum go up and down completely randomly.

Pair Corralation between Core and Arbitrum

Assuming the 90 days trading horizon Core is expected to generate 1.4 times more return on investment than Arbitrum. However, Core is 1.4 times more volatile than Arbitrum. It trades about 0.19 of its potential returns per unit of risk. Arbitrum is currently generating about 0.21 per unit of risk. If you would invest  87.00  in Core on September 2, 2024 and sell it today you would earn a total of  110.00  from holding Core or generate 126.44% return on investment over 90 days.

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

Core  vs.  Arbitrum

Core

Risk-Adjusted Performance

15 of 100

OK

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

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.

Pair Trading with Core and Arbitrum

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

The idea behind Core and Arbitrum 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.