Correlation Between Arabian Food and Arabia Investments

Can any of the company-specific risk be diversified away by investing in both Arabian Food and Arabia Investments 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 Arabian Food and Arabia Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arabian Food Industries and Arabia Investments Holding, you can compare the effects of market volatilities on Arabian Food and Arabia Investments 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 Arabian Food with a short position of Arabia Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arabian Food and Arabia Investments.

Diversification Opportunities for Arabian Food and Arabia Investments

-0.1

Correlation Coefficient

Arabian Food  Arabia Investments

Good diversification

The 3 months correlation between Arabian and Arabia is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Arabian Food Industries and Arabia Investments Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arabia Investments and Arabian Food 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 Arabian Food Industries are associated (or correlated) with Arabia Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arabia Investments has no effect on the direction of Arabian Food i.e., Arabian Food and Arabia Investments go up and down completely randomly.

Pair Corralation between Arabian Food and Arabia Investments

Assuming the 90 days trading horizon Arabian Food Industries is expected to under-perform the Arabia Investments. But the stock apears to be less risky and, when comparing its historical volatility, Arabian Food Industries is 1.06 times less risky than Arabia Investments. The stock trades about -0.04 of its potential returns per unit of risk. The Arabia Investments Holding is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  54.00  in Arabia Investments Holding on December 30, 2024 and sell it today you would lose (1.00) from holding Arabia Investments Holding or give up 1.85% of portfolio value over 90 days.

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

Arabian Food Industries  vs.  Arabia Investments Holding

Arabian Food Industries

Risk-Adjusted Performance

Very Weak

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

Arabia Investments

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Arabian Food and Arabia Investments

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

The idea behind Arabian Food Industries and Arabia Investments Holding 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.