Correlation Between Arm Holdings and NISOURCE

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

Diversification Opportunities for Arm Holdings and NISOURCE

0.38

Correlation Coefficient

Arm Holdings  NISOURCE

Weak diversification

The 3 months correlation between Arm and NISOURCE is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and NISOURCE FIN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NISOURCE FIN P 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 NISOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NISOURCE FIN P has no effect on the direction of Arm Holdings i.e., Arm Holdings and NISOURCE go up and down completely randomly.

Pair Corralation between Arm Holdings and NISOURCE

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 6.01 times more return on investment than NISOURCE. However, Arm Holdings is 6.01 times more volatile than NISOURCE FIN P. It trades about 0.09 of its potential returns per unit of risk. NISOURCE FIN P is currently generating about -0.54 per unit of risk. If you would invest  13,964  in Arm Holdings plc on October 8, 2024 and sell it today you would earn a total of  777.00  from holding Arm Holdings plc or generate 5.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	84.21%
Values	Daily Returns

Arm Holdings plc  vs.  NISOURCE FIN P

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 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.

NISOURCE FIN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NISOURCE FIN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NISOURCE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Arm Holdings and NISOURCE

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

The idea behind Arm Holdings plc and NISOURCE FIN P 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.