Correlation Between Aris Water and Marfrig Global

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

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

Diversification Opportunities for Aris Water and Marfrig Global

0.45

Correlation Coefficient

Aris Water  Marfrig Global

Very weak diversification

The 3 months correlation between Aris and Marfrig is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Aris Water Solutions and Marfrig Global Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marfrig Global Foods and Aris Water 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 Aris Water Solutions are associated (or correlated) with Marfrig Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marfrig Global Foods has no effect on the direction of Aris Water i.e., Aris Water and Marfrig Global go up and down completely randomly.

Pair Corralation between Aris Water and Marfrig Global

Given the investment horizon of 90 days Aris Water Solutions is expected to generate 0.95 times more return on investment than Marfrig Global. However, Aris Water Solutions is 1.05 times less risky than Marfrig Global. It trades about 0.25 of its potential returns per unit of risk. Marfrig Global Foods is currently generating about 0.13 per unit of risk. If you would invest  2,534  in Aris Water Solutions on October 27, 2024 and sell it today you would earn a total of  438.00  from holding Aris Water Solutions or generate 17.28% return on investment over 90 days.

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

Aris Water Solutions  vs.  Marfrig Global Foods

Aris Water Solutions

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aris Water Solutions are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Aris Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Marfrig Global Foods

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Marfrig Global Foods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Marfrig Global showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aris Water and Marfrig Global

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

The idea behind Aris Water Solutions and Marfrig Global Foods 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..