Correlation Between ARK Next and Main Sector

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

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

Diversification Opportunities for ARK Next and Main Sector

0.86

Correlation Coefficient

ARK Next  Main Sector

Very poor diversification

The 3 months correlation between ARK and Main is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding ARK Next Generation and Main Sector Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Sector Rotation and ARK Next 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 ARK Next Generation are associated (or correlated) with Main Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Sector Rotation has no effect on the direction of ARK Next i.e., ARK Next and Main Sector go up and down completely randomly.

Pair Corralation between ARK Next and Main Sector

Given the investment horizon of 90 days ARK Next Generation is expected to under-perform the Main Sector. In addition to that, ARK Next is 2.0 times more volatile than Main Sector Rotation. It trades about -0.04 of its total potential returns per unit of risk. Main Sector Rotation is currently generating about -0.08 per unit of volatility. If you would invest  5,694  in Main Sector Rotation on December 3, 2024 and sell it today you would lose (314.00) from holding Main Sector Rotation or give up 5.51% of portfolio value over 90 days.

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

ARK Next Generation  vs.  Main Sector Rotation

ARK Next Generation

Risk-Adjusted Performance

Very Weak

Over the last 90 days ARK Next Generation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward-looking signals, ARK Next is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Main Sector Rotation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Main Sector Rotation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Main Sector is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ARK Next and Main Sector

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

The idea behind ARK Next Generation and Main Sector Rotation 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.