Correlation Between Arm Holdings and Montauk Renewables

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

Diversification Opportunities for Arm Holdings and Montauk Renewables

0.69

Correlation Coefficient

Arm Holdings  Montauk Renewables

Poor diversification

The 3 months correlation between Arm and Montauk is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Montauk Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montauk Renewables 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 Montauk Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montauk Renewables has no effect on the direction of Arm Holdings i.e., Arm Holdings and Montauk Renewables go up and down completely randomly.

Pair Corralation between Arm Holdings and Montauk Renewables

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 0.77 times more return on investment than Montauk Renewables. However, Arm Holdings plc is 1.31 times less risky than Montauk Renewables. It trades about 0.01 of its potential returns per unit of risk. Montauk Renewables is currently generating about -0.01 per unit of risk. If you would invest  13,918  in Arm Holdings plc on September 12, 2024 and sell it today you would lose (189.00) from holding Arm Holdings plc or give up 1.36% of portfolio value over 90 days.

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

Arm Holdings plc  vs.  Montauk Renewables

Arm Holdings plc

Risk-Adjusted Performance

0 of 100

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 current stock price disarray, may contribute to short-term losses for the investors.

Montauk Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montauk Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Montauk Renewables is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Arm Holdings and Montauk Renewables

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

The idea behind Arm Holdings plc and Montauk Renewables 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.