Correlation Between ADX Energy and Arrow Exploration

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

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

Diversification Opportunities for ADX Energy and Arrow Exploration

0.25

Correlation Coefficient

ADX Energy  Arrow Exploration

Modest diversification

The 3 months correlation between ADX and Arrow is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding ADX Energy and Arrow Exploration Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Exploration Corp and ADX Energy 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 ADX Energy are associated (or correlated) with Arrow Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Exploration Corp has no effect on the direction of ADX Energy i.e., ADX Energy and Arrow Exploration go up and down completely randomly.

Pair Corralation between ADX Energy and Arrow Exploration

Assuming the 90 days horizon ADX Energy is expected to under-perform the Arrow Exploration. In addition to that, ADX Energy is 2.69 times more volatile than Arrow Exploration Corp. It trades about -0.3 of its total potential returns per unit of risk. Arrow Exploration Corp is currently generating about -0.21 per unit of volatility. If you would invest  31.00  in Arrow Exploration Corp on December 2, 2024 and sell it today you would lose (6.00) from holding Arrow Exploration Corp or give up 19.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

ADX Energy  vs.  Arrow Exploration Corp

ADX Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADX Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ADX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Arrow Exploration Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arrow Exploration Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with ADX Energy and Arrow Exploration

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

The idea behind ADX Energy and Arrow Exploration Corp 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.