Correlation Between FARM and Arbitrum

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

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

Diversification Opportunities for FARM and Arbitrum

0.92

Correlation Coefficient

FARM  Arbitrum

Almost no diversification

The 3 months correlation between FARM and Arbitrum is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding FARM and Arbitrum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrum and FARM 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 FARM are associated (or correlated) with Arbitrum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrum has no effect on the direction of FARM i.e., FARM and Arbitrum go up and down completely randomly.

Pair Corralation between FARM and Arbitrum

Assuming the 90 days trading horizon FARM is expected to generate 2.11 times less return on investment than Arbitrum. But when comparing it to its historical volatility, FARM is 1.3 times less risky than Arbitrum. It trades about 0.13 of its potential returns per unit of risk. Arbitrum is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  49.00  in Arbitrum on September 1, 2024 and sell it today you would earn a total of  44.00  from holding Arbitrum or generate 89.8% return on investment over 90 days.

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

FARM  vs.  Arbitrum

FARM

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FARM are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, FARM exhibited solid returns over the last few months and may actually be approaching a breakup point.

Arbitrum

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arbitrum are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Arbitrum exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FARM and Arbitrum

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

The idea behind FARM and Arbitrum 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.