Correlation Between Adaptive Alpha and Arrow DWA

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

By analyzing existing cross correlation between Adaptive Alpha Opportunities and Arrow DWA Tactical, you can compare the effects of market volatilities on Adaptive Alpha and Arrow DWA 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 Adaptive Alpha with a short position of Arrow DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adaptive Alpha and Arrow DWA.

Diversification Opportunities for Adaptive Alpha and Arrow DWA

0.79

Correlation Coefficient

Adaptive Alpha  Arrow DWA

Poor diversification

The 3 months correlation between Adaptive and Arrow is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Adaptive Alpha Opportunities and Arrow DWA Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow DWA Tactical and Adaptive Alpha 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 Adaptive Alpha Opportunities are associated (or correlated) with Arrow DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow DWA Tactical has no effect on the direction of Adaptive Alpha i.e., Adaptive Alpha and Arrow DWA go up and down completely randomly.

Pair Corralation between Adaptive Alpha and Arrow DWA

Given the investment horizon of 90 days Adaptive Alpha Opportunities is expected to under-perform the Arrow DWA. In addition to that, Adaptive Alpha is 1.72 times more volatile than Arrow DWA Tactical. It trades about -0.09 of its total potential returns per unit of risk. Arrow DWA Tactical is currently generating about -0.05 per unit of volatility. If you would invest  1,198  in Arrow DWA Tactical on December 2, 2024 and sell it today you would lose (9.00) from holding Arrow DWA Tactical or give up 0.75% of portfolio value over 90 days.

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

Adaptive Alpha Opportunities  vs.  Arrow DWA Tactical

Adaptive Alpha Oppor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adaptive Alpha Opportunities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Adaptive Alpha is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Arrow DWA Tactical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arrow DWA Tactical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Arrow DWA is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Adaptive Alpha and Arrow DWA

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

The idea behind Adaptive Alpha Opportunities and Arrow DWA Tactical 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 Transaction History module to view history of all your transactions and understand their impact on performance.