Correlation Between Arbor Metals and Western Investment

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

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

Diversification Opportunities for Arbor Metals and Western Investment

0.13

Correlation Coefficient

Arbor Metals  Western Investment

Average diversification

The 3 months correlation between Arbor and Western is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Metals Corp and Western Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Investment and Arbor Metals 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 Arbor Metals Corp are associated (or correlated) with Western Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Investment has no effect on the direction of Arbor Metals i.e., Arbor Metals and Western Investment go up and down completely randomly.

Pair Corralation between Arbor Metals and Western Investment

Assuming the 90 days horizon Arbor Metals Corp is expected to generate 4.48 times more return on investment than Western Investment. However, Arbor Metals is 4.48 times more volatile than Western Investment. It trades about 0.1 of its potential returns per unit of risk. Western Investment is currently generating about -0.01 per unit of risk. If you would invest  23.00  in Arbor Metals Corp on December 28, 2024 and sell it today you would earn a total of  9.00  from holding Arbor Metals Corp or generate 39.13% return on investment over 90 days.

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

Arbor Metals Corp  vs.  Western Investment

Arbor Metals Corp

Risk-Adjusted Performance

OK

Over the last 90 days Arbor Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Arbor Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Western Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Western Investment is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Arbor Metals and Western Investment

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

The idea behind Arbor Metals Corp and Western Investment 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.