Correlation Between Arm Holdings and PennantPark Floating

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

Diversification Opportunities for Arm Holdings and PennantPark Floating

0.61

Correlation Coefficient

Arm Holdings  PennantPark Floating

Poor diversification

The 3 months correlation between Arm and PennantPark is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and PennantPark Floating Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Floating Rate 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 PennantPark Floating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Floating Rate has no effect on the direction of Arm Holdings i.e., Arm Holdings and PennantPark Floating go up and down completely randomly.

Pair Corralation between Arm Holdings and PennantPark Floating

Considering the 90-day investment horizon Arm Holdings plc is expected to under-perform the PennantPark Floating. In addition to that, Arm Holdings is 4.09 times more volatile than PennantPark Floating Rate. It trades about -0.03 of its total potential returns per unit of risk. PennantPark Floating Rate is currently generating about -0.11 per unit of volatility. If you would invest  1,097  in PennantPark Floating Rate on September 28, 2024 and sell it today you would lose (17.00) from holding PennantPark Floating Rate or give up 1.55% 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.  PennantPark Floating Rate

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 latest fragile 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.

PennantPark Floating Rate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PennantPark Floating Rate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, PennantPark Floating is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Arm Holdings and PennantPark Floating

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

The idea behind Arm Holdings plc and PennantPark Floating Rate 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.