Correlation Between GENERAL and Arm Holdings

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

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

Diversification Opportunities for GENERAL and Arm Holdings

0.18

Correlation Coefficient

GENERAL  Arm Holdings

Average diversification

The 3 months correlation between GENERAL and Arm is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP 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 GENERAL 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 GENERAL ELEC CAP 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 GENERAL i.e., GENERAL and Arm Holdings go up and down completely randomly.

Pair Corralation between GENERAL and Arm Holdings

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to under-perform the Arm Holdings. But the bond apears to be less risky and, when comparing its historical volatility, GENERAL ELEC CAP is 1.31 times less risky than Arm Holdings. The bond trades about -0.1 of its potential returns per unit of risk. The Arm Holdings plc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  14,737  in Arm Holdings plc on September 13, 2024 and sell it today you would lose (421.00) from holding Arm Holdings plc or give up 2.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	50.79%
Values	Daily Returns

GENERAL ELEC CAP  vs.  Arm Holdings plc

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for GENERAL ELEC CAP investors.

Arm Holdings plc

Risk-Adjusted Performance

0 of 100

Very 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 GENERAL and Arm Holdings

The main advantage of trading using opposite GENERAL and Arm Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GENERAL 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 GENERAL ELEC CAP 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.