Correlation Between RCN and Arbitrum

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

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

Diversification Opportunities for RCN and Arbitrum

-0.37

Correlation Coefficient

RCN  Arbitrum

Very good diversification

The 3 months correlation between RCN and Arbitrum is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding RCN and Arbitrum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrum and RCN 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 RCN 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 RCN i.e., RCN and Arbitrum go up and down completely randomly.

Pair Corralation between RCN and Arbitrum

Assuming the 90 days trading horizon RCN is expected to generate 7.08 times more return on investment than Arbitrum. However, RCN is 7.08 times more volatile than Arbitrum. It trades about 0.12 of its potential returns per unit of risk. Arbitrum is currently generating about 0.2 per unit of risk. If you would invest  0.12  in RCN on September 1, 2024 and sell it today you would lose (0.07) from holding RCN or give up 58.09% of portfolio value over 90 days.

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

RCN  vs.  Arbitrum

RCN

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RCN are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, RCN 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 RCN and Arbitrum

The main advantage of trading using opposite RCN and Arbitrum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RCN 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 RCN 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.