Correlation Between ATT and Arch Therapeutics

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

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

Diversification Opportunities for ATT and Arch Therapeutics

-0.63

Correlation Coefficient

ATT  Arch Therapeutics

Excellent diversification

The 3 months correlation between ATT and Arch is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Arch Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Therapeutics and ATT 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 ATT Inc are associated (or correlated) with Arch Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Therapeutics has no effect on the direction of ATT i.e., ATT and Arch Therapeutics go up and down completely randomly.

Pair Corralation between ATT and Arch Therapeutics

Taking into account the 90-day investment horizon ATT is expected to generate 1.09 times less return on investment than Arch Therapeutics. But when comparing it to its historical volatility, ATT Inc is 15.49 times less risky than Arch Therapeutics. It trades about 0.18 of its potential returns per unit of risk. Arch Therapeutics is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  56.00  in Arch Therapeutics on September 3, 2024 and sell it today you would lose (35.00) from holding Arch Therapeutics or give up 62.5% of portfolio value over 90 days.

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

ATT Inc  vs.  Arch Therapeutics

ATT Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, ATT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Arch Therapeutics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Therapeutics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Arch Therapeutics demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ATT and Arch Therapeutics

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

The idea behind ATT Inc and Arch Therapeutics 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.