Correlation Between Arm Holdings and Orchestra BioMed

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

Diversification Opportunities for Arm Holdings and Orchestra BioMed

0.84

Correlation Coefficient

Arm Holdings  Orchestra BioMed

Very poor diversification

The 3 months correlation between Arm and Orchestra is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Orchestra BioMed Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orchestra BioMed Holdings 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 Orchestra BioMed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orchestra BioMed Holdings has no effect on the direction of Arm Holdings i.e., Arm Holdings and Orchestra BioMed go up and down completely randomly.

Pair Corralation between Arm Holdings and Orchestra BioMed

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 0.71 times more return on investment than Orchestra BioMed. However, Arm Holdings plc is 1.41 times less risky than Orchestra BioMed. It trades about -0.01 of its potential returns per unit of risk. Orchestra BioMed Holdings is currently generating about -0.02 per unit of risk. If you would invest  13,210  in Arm Holdings plc on December 19, 2024 and sell it today you would lose (1,238) from holding Arm Holdings plc or give up 9.37% of portfolio value over 90 days.

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

Arm Holdings plc  vs.  Orchestra BioMed Holdings

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.

Orchestra BioMed Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Orchestra BioMed Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Arm Holdings and Orchestra BioMed

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

The idea behind Arm Holdings plc and Orchestra BioMed Holdings 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.