Correlation Between Natura City and Arkadia Digital

Can any of the company-specific risk be diversified away by investing in both Natura City and Arkadia Digital 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 Natura City and Arkadia Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Natura City Developments and Arkadia Digital Media, you can compare the effects of market volatilities on Natura City and Arkadia Digital 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 Natura City with a short position of Arkadia Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natura City and Arkadia Digital.

Diversification Opportunities for Natura City and Arkadia Digital

-0.11

Correlation Coefficient

Natura City  Arkadia Digital

Good diversification

The 3 months correlation between Natura and Arkadia is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Natura City Developments and Arkadia Digital Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkadia Digital Media and Natura City 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 Natura City Developments are associated (or correlated) with Arkadia Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkadia Digital Media has no effect on the direction of Natura City i.e., Natura City and Arkadia Digital go up and down completely randomly.

Pair Corralation between Natura City and Arkadia Digital

Assuming the 90 days trading horizon Natura City Developments is expected to under-perform the Arkadia Digital. But the stock apears to be less risky and, when comparing its historical volatility, Natura City Developments is 1.13 times less risky than Arkadia Digital. The stock trades about -0.12 of its potential returns per unit of risk. The Arkadia Digital Media is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,500  in Arkadia Digital Media on December 25, 2024 and sell it today you would earn a total of  200.00  from holding Arkadia Digital Media or generate 13.33% return on investment over 90 days.

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

Natura City Developments  vs.  Arkadia Digital Media

Natura City Developments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natura City Developments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Arkadia Digital Media

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arkadia Digital Media are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Arkadia Digital disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Natura City and Arkadia Digital

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

The idea behind Natura City Developments and Arkadia Digital Media 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.