Correlation Between Arbitrum and IRIS

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

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

Diversification Opportunities for Arbitrum and IRIS

0.72

Correlation Coefficient

Arbitrum  IRIS

Poor diversification

The 3 months correlation between Arbitrum and IRIS is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Arbitrum and IRIS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IRIS and Arbitrum 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 Arbitrum are associated (or correlated) with IRIS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IRIS has no effect on the direction of Arbitrum i.e., Arbitrum and IRIS go up and down completely randomly.

Pair Corralation between Arbitrum and IRIS

Assuming the 90 days trading horizon Arbitrum is expected to generate 0.57 times more return on investment than IRIS. However, Arbitrum is 1.77 times less risky than IRIS. It trades about -0.19 of its potential returns per unit of risk. IRIS is currently generating about -0.13 per unit of risk. If you would invest  105.00  in Arbitrum on December 1, 2024 and sell it today you would lose (63.00) from holding Arbitrum or give up 60.0% of portfolio value over 90 days.

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

Arbitrum  vs.  IRIS

Arbitrum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arbitrum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental drivers remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Arbitrum shareholders.

IRIS

Risk-Adjusted Performance

Very Weak

Over the last 90 days IRIS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for IRIS shareholders.

Pair Trading with Arbitrum and IRIS

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

The idea behind Arbitrum and IRIS 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.