Correlation Between Freehold Royalties and ARC Resources

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

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

Diversification Opportunities for Freehold Royalties and ARC Resources

0.52

Correlation Coefficient

Freehold Royalties  ARC Resources

Very weak diversification

The 3 months correlation between Freehold and ARC is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Freehold Royalties and ARC Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARC Resources and Freehold Royalties 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 Freehold Royalties are associated (or correlated) with ARC Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARC Resources has no effect on the direction of Freehold Royalties i.e., Freehold Royalties and ARC Resources go up and down completely randomly.

Pair Corralation between Freehold Royalties and ARC Resources

Assuming the 90 days trading horizon Freehold Royalties is expected to generate 1.77 times less return on investment than ARC Resources. But when comparing it to its historical volatility, Freehold Royalties is 1.92 times less risky than ARC Resources. It trades about 0.08 of its potential returns per unit of risk. ARC Resources is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,367  in ARC Resources on September 3, 2024 and sell it today you would earn a total of  214.00  from holding ARC Resources or generate 9.04% return on investment over 90 days.

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

Freehold Royalties  vs.  ARC Resources

Freehold Royalties

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Freehold Royalties are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Freehold Royalties is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

ARC Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ARC Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, ARC Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Freehold Royalties and ARC Resources

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

The idea behind Freehold Royalties and ARC Resources 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.