Correlation Between AKITA Drilling and Arm Holdings

Can any of the company-specific risk be diversified away by investing in both AKITA Drilling and Arm Holdings 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 AKITA Drilling and Arm Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AKITA Drilling and Arm Holdings plc, you can compare the effects of market volatilities on AKITA Drilling and Arm Holdings 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 AKITA Drilling with a short position of Arm Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of AKITA Drilling and Arm Holdings.

Diversification Opportunities for AKITA Drilling and Arm Holdings

0.37

Correlation Coefficient

AKITA Drilling  Arm Holdings

Weak diversification

The 3 months correlation between AKITA and Arm is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding AKITA Drilling and Arm Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arm Holdings plc and AKITA Drilling 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 AKITA Drilling are associated (or correlated) with Arm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arm Holdings plc has no effect on the direction of AKITA Drilling i.e., AKITA Drilling and Arm Holdings go up and down completely randomly.

Pair Corralation between AKITA Drilling and Arm Holdings

Assuming the 90 days horizon AKITA Drilling is expected to generate 6.37 times less return on investment than Arm Holdings. But when comparing it to its historical volatility, AKITA Drilling is 1.83 times less risky than Arm Holdings. It trades about 0.02 of its potential returns per unit of risk. Arm Holdings plc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,359  in Arm Holdings plc on December 4, 2024 and sell it today you would earn a total of  5,667  from holding Arm Holdings plc or generate 89.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	74.34%
Values	Daily Returns

AKITA Drilling  vs.  Arm Holdings plc

AKITA Drilling

Risk-Adjusted Performance

Very Weak

Over the last 90 days AKITA Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Arm Holdings plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arm Holdings plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with AKITA Drilling and Arm Holdings

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

The idea behind AKITA Drilling and Arm Holdings plc 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.