Correlation Between Arm Holdings and Perseus Mining

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

Diversification Opportunities for Arm Holdings and Perseus Mining

0.71

Correlation Coefficient

Arm Holdings  Perseus Mining

Poor diversification

The 3 months correlation between Arm and Perseus is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Perseus Mining Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perseus Mining 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 Perseus Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perseus Mining has no effect on the direction of Arm Holdings i.e., Arm Holdings and Perseus Mining go up and down completely randomly.

Pair Corralation between Arm Holdings and Perseus Mining

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 1.66 times more return on investment than Perseus Mining. However, Arm Holdings is 1.66 times more volatile than Perseus Mining Limited. It trades about 0.07 of its potential returns per unit of risk. Perseus Mining Limited is currently generating about 0.02 per unit of risk. If you would invest  6,359  in Arm Holdings plc on October 7, 2024 and sell it today you would earn a total of  7,749  from holding Arm Holdings plc or generate 121.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	68.32%
Values	Daily Returns

Arm Holdings plc  vs.  Perseus Mining Limited

Arm Holdings plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arm Holdings plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Arm Holdings is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Perseus Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Arm Holdings and Perseus Mining

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

The idea behind Arm Holdings plc and Perseus Mining Limited 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.