Correlation Between Arabia Investments and Housing Development

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

By analyzing existing cross correlation between Arabia Investments Holding and Housing Development Bank, you can compare the effects of market volatilities on Arabia Investments and Housing Development 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 Arabia Investments with a short position of Housing Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arabia Investments and Housing Development.

Diversification Opportunities for Arabia Investments and Housing Development

0.35

Correlation Coefficient

Arabia Investments  Housing Development

Weak diversification

The 3 months correlation between Arabia and Housing is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Arabia Investments Holding and Housing Development Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Housing Development Bank and Arabia Investments 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 Arabia Investments Holding are associated (or correlated) with Housing Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Housing Development Bank has no effect on the direction of Arabia Investments i.e., Arabia Investments and Housing Development go up and down completely randomly.

Pair Corralation between Arabia Investments and Housing Development

Assuming the 90 days trading horizon Arabia Investments Holding is expected to generate 2.75 times more return on investment than Housing Development. However, Arabia Investments is 2.75 times more volatile than Housing Development Bank. It trades about 0.15 of its potential returns per unit of risk. Housing Development Bank is currently generating about 0.03 per unit of risk. If you would invest  51.00  in Arabia Investments Holding on October 10, 2024 and sell it today you would earn a total of  4.00  from holding Arabia Investments Holding or generate 7.84% return on investment over 90 days.

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

Arabia Investments Holding  vs.  Housing Development Bank

Arabia Investments

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arabia Investments Holding are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Arabia Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Housing Development Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Housing Development Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Housing Development reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arabia Investments and Housing Development

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

The idea behind Arabia Investments Holding and Housing Development Bank 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.