Correlation Between Arabia Investments and Al Khair

Can any of the company-specific risk be diversified away by investing in both Arabia Investments and Al Khair 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 Al Khair 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 Al Khair River, you can compare the effects of market volatilities on Arabia Investments and Al Khair 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 Al Khair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arabia Investments and Al Khair.

Diversification Opportunities for Arabia Investments and Al Khair

0.31

Correlation Coefficient

Arabia Investments  Al Khair

Weak diversification

The 3 months correlation between Arabia and KRDI is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Arabia Investments Holding and Al Khair River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Al Khair River 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 Al Khair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Al Khair River has no effect on the direction of Arabia Investments i.e., Arabia Investments and Al Khair go up and down completely randomly.

Pair Corralation between Arabia Investments and Al Khair

Assuming the 90 days trading horizon Arabia Investments Holding is expected to generate about the same return on investment as Al Khair River. But, Arabia Investments Holding is 1.18 times less risky than Al Khair. It trades about 0.05 of its potential returns per unit of risk. Al Khair River is currently generating about 0.04 per unit of risk. If you would invest  57.00  in Al Khair River on December 22, 2024 and sell it today you would earn a total of  2.00  from holding Al Khair River or generate 3.51% 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.  Al Khair River

Arabia Investments

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arabia Investments Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Arabia Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Al Khair River

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Al Khair River are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Al Khair is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arabia Investments and Al Khair

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

The idea behind Arabia Investments Holding and Al Khair River 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.