Correlation Between Eldorado Gold and Arm Holdings

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

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

Diversification Opportunities for Eldorado Gold and Arm Holdings

0.61

Correlation Coefficient

Eldorado Gold  Arm Holdings

Poor diversification

The 3 months correlation between Eldorado and Arm is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Eldorado Gold Corp and Arm Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arm Holdings plc and Eldorado Gold 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 Eldorado Gold Corp are associated (or correlated) with Arm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arm Holdings plc has no effect on the direction of Eldorado Gold i.e., Eldorado Gold and Arm Holdings go up and down completely randomly.

Pair Corralation between Eldorado Gold and Arm Holdings

Considering the 90-day investment horizon Eldorado Gold is expected to generate 2.94 times less return on investment than Arm Holdings. But when comparing it to its historical volatility, Eldorado Gold Corp is 2.3 times less risky than Arm Holdings. It trades about 0.06 of its potential returns per unit of risk. Arm Holdings plc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,887  in Arm Holdings plc on September 13, 2024 and sell it today you would earn a total of  7,429  from holding Arm Holdings plc or generate 107.87% return on investment over 90 days.

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

Eldorado Gold Corp  vs.  Arm Holdings plc

Eldorado Gold Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Arm Holdings plc

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Eldorado Gold and Arm Holdings

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

The idea behind Eldorado Gold Corp and Arm Holdings plc 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.