Correlation Between Arm Holdings and Teradyne

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

Diversification Opportunities for Arm Holdings and Teradyne

0.39

Correlation Coefficient

Arm Holdings  Teradyne

Weak diversification

The 3 months correlation between Arm and Teradyne is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne 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 Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of Arm Holdings i.e., Arm Holdings and Teradyne go up and down completely randomly.

Pair Corralation between Arm Holdings and Teradyne

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 1.2 times more return on investment than Teradyne. However, Arm Holdings is 1.2 times more volatile than Teradyne. It trades about 0.02 of its potential returns per unit of risk. Teradyne is currently generating about -0.04 per unit of risk. If you would invest  14,737  in Arm Holdings plc on September 13, 2024 and sell it today you would earn a total of  62.00  from holding Arm Holdings plc or generate 0.42% return on investment over 90 days.

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

Arm Holdings plc  vs.  Teradyne

Arm Holdings plc

Risk-Adjusted Performance

1 of 100

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

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Teradyne is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Arm Holdings and Teradyne

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

The idea behind Arm Holdings plc and Teradyne 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 CEOs Directory module to screen CEOs from public companies around the world.