Correlation Between Strong H and Arbor Technology

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

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

Diversification Opportunities for Strong H and Arbor Technology

0.67

Correlation Coefficient

Strong H  Arbor Technology

Poor diversification

The 3 months correlation between Strong and Arbor is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Strong H Machinery and Arbor Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbor Technology and Strong H 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 Strong H Machinery are associated (or correlated) with Arbor Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbor Technology has no effect on the direction of Strong H i.e., Strong H and Arbor Technology go up and down completely randomly.

Pair Corralation between Strong H and Arbor Technology

Assuming the 90 days trading horizon Strong H Machinery is expected to generate 0.5 times more return on investment than Arbor Technology. However, Strong H Machinery is 2.0 times less risky than Arbor Technology. It trades about 0.2 of its potential returns per unit of risk. Arbor Technology is currently generating about 0.08 per unit of risk. If you would invest  3,350  in Strong H Machinery on September 25, 2024 and sell it today you would earn a total of  220.00  from holding Strong H Machinery or generate 6.57% return on investment over 90 days.

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

Strong H Machinery  vs.  Arbor Technology

Strong H Machinery

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Strong H Machinery are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Strong H may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arbor Technology

Risk-Adjusted Performance

7 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Arbor Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Strong H and Arbor Technology

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

The idea behind Strong H Machinery and Arbor Technology 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.