Correlation Between Arm Holdings and New Providence

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

Diversification Opportunities for Arm Holdings and New Providence

-0.42

Correlation Coefficient

Arm Holdings  New Providence

Very good diversification

The 3 months correlation between Arm and New is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and New Providence Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Providence Acqui 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 New Providence. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Providence Acqui has no effect on the direction of Arm Holdings i.e., Arm Holdings and New Providence go up and down completely randomly.

Pair Corralation between Arm Holdings and New Providence

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 6.99 times more return on investment than New Providence. However, Arm Holdings is 6.99 times more volatile than New Providence Acquisition. It trades about 0.05 of its potential returns per unit of risk. New Providence Acquisition is currently generating about -0.37 per unit of risk. If you would invest  14,104  in Arm Holdings plc on October 24, 2024 and sell it today you would earn a total of  822.00  from holding Arm Holdings plc or generate 5.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	23.73%
Values	Daily Returns

Arm Holdings plc  vs.  New Providence Acquisition

Arm Holdings plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arm Holdings plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Arm Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

New Providence Acqui

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Providence Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Arm Holdings and New Providence

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

The idea behind Arm Holdings plc and New Providence Acquisition 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.