Correlation Between Covalon Technologies and Arch Biopartners

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

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

Diversification Opportunities for Covalon Technologies and Arch Biopartners

0.55

Correlation Coefficient

Covalon Technologies  Arch Biopartners

Very weak diversification

The 3 months correlation between Covalon and Arch is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Covalon Technologies and Arch Biopartners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Biopartners and Covalon Technologies 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 Covalon Technologies are associated (or correlated) with Arch Biopartners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Biopartners has no effect on the direction of Covalon Technologies i.e., Covalon Technologies and Arch Biopartners go up and down completely randomly.

Pair Corralation between Covalon Technologies and Arch Biopartners

Assuming the 90 days horizon Covalon Technologies is expected to generate 1.8 times less return on investment than Arch Biopartners. In addition to that, Covalon Technologies is 1.1 times more volatile than Arch Biopartners. It trades about 0.1 of its total potential returns per unit of risk. Arch Biopartners is currently generating about 0.2 per unit of volatility. If you would invest  141.00  in Arch Biopartners on September 1, 2024 and sell it today you would earn a total of  54.00  from holding Arch Biopartners or generate 38.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Covalon Technologies  vs.  Arch Biopartners

Covalon Technologies

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Covalon Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Covalon Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Arch Biopartners

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Covalon Technologies and Arch Biopartners

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

The idea behind Covalon Technologies and Arch Biopartners 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.