Correlation Between Arrow Exploration and ADX Energy

Can any of the company-specific risk be diversified away by investing in both Arrow Exploration and ADX Energy 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 Arrow Exploration and ADX Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arrow Exploration Corp and ADX Energy, you can compare the effects of market volatilities on Arrow Exploration and ADX Energy 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 Arrow Exploration with a short position of ADX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arrow Exploration and ADX Energy.

Diversification Opportunities for Arrow Exploration and ADX Energy

0.38

Correlation Coefficient

Arrow Exploration  ADX Energy

Weak diversification

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

Pair Corralation between Arrow Exploration and ADX Energy

Assuming the 90 days horizon Arrow Exploration Corp is expected to under-perform the ADX Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, Arrow Exploration Corp is 1.55 times less risky than ADX Energy. The pink sheet trades about -0.01 of its potential returns per unit of risk. The ADX Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7.50  in ADX Energy on September 13, 2024 and sell it today you would lose (3.50) from holding ADX Energy or give up 46.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Arrow Exploration Corp  vs.  ADX Energy

Arrow Exploration Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

ADX Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADX Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, ADX Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Arrow Exploration and ADX Energy

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

The idea behind Arrow Exploration Corp and ADX Energy 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.