Correlation Between Arm Holdings and Awilco Drilling

Can any of the company-specific risk be diversified away by investing in both Arm Holdings and Awilco 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 Awilco 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 Awilco Drilling PLC, you can compare the effects of market volatilities on Arm Holdings and Awilco 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 Awilco Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arm Holdings and Awilco Drilling.

Diversification Opportunities for Arm Holdings and Awilco Drilling

-0.31

Correlation Coefficient

Arm Holdings  Awilco Drilling

Very good diversification

The 3 months correlation between Arm and Awilco is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Awilco Drilling PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Awilco Drilling PLC 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 Awilco Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Awilco Drilling PLC has no effect on the direction of Arm Holdings i.e., Arm Holdings and Awilco Drilling go up and down completely randomly.

Pair Corralation between Arm Holdings and Awilco Drilling

Considering the 90-day investment horizon Arm Holdings is expected to generate 7.95 times less return on investment than Awilco Drilling. But when comparing it to its historical volatility, Arm Holdings plc is 9.15 times less risky than Awilco Drilling. It trades about 0.06 of its potential returns per unit of risk. Awilco Drilling PLC is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,000.00  in Awilco Drilling PLC on December 4, 2024 and sell it today you would lose (819.00) from holding Awilco Drilling PLC or give up 81.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	73.9%
Values	Daily Returns

Arm Holdings plc  vs.  Awilco Drilling PLC

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.

Awilco Drilling PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Awilco Drilling PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Awilco Drilling is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arm Holdings and Awilco Drilling

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

The idea behind Arm Holdings plc and Awilco Drilling 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.