Correlation Between Arm Holdings and AKITA Drilling

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

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

Diversification Opportunities for Arm Holdings and AKITA Drilling

0.17

Correlation Coefficient

Arm Holdings  AKITA Drilling

Average diversification

The 3 months correlation between Arm and AKITA is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Arm Holdings 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 Arm Holdings plc are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of Arm Holdings i.e., Arm Holdings and AKITA Drilling go up and down completely randomly.

Pair Corralation between Arm Holdings and AKITA Drilling

Considering the 90-day investment horizon Arm Holdings is expected to generate 13.85 times less return on investment than AKITA Drilling. In addition to that, Arm Holdings is 1.67 times more volatile than AKITA Drilling. It trades about 0.01 of its total potential returns per unit of risk. AKITA Drilling is currently generating about 0.14 per unit of volatility. If you would invest  110.00  in AKITA Drilling on December 26, 2024 and sell it today you would earn a total of  25.00  from holding AKITA Drilling or generate 22.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Arm Holdings plc  vs.  AKITA Drilling

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 very healthy basic indicators, Arm Holdings is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

AKITA Drilling

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AKITA Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arm Holdings and AKITA Drilling

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

The idea behind Arm Holdings plc and AKITA Drilling 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.