Correlation Between Gear Energy and ARC Resources

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

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

Diversification Opportunities for Gear Energy and ARC Resources

-0.19

Correlation Coefficient

Gear Energy  ARC Resources

Good diversification

The 3 months correlation between Gear and ARC is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Gear Energy and ARC Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARC Resources and Gear Energy 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 Gear Energy 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 Gear Energy i.e., Gear Energy and ARC Resources go up and down completely randomly.

Pair Corralation between Gear Energy and ARC Resources

Assuming the 90 days trading horizon Gear Energy is expected to under-perform the ARC Resources. In addition to that, Gear Energy is 1.54 times more volatile than ARC Resources. It trades about -0.02 of its total potential returns per unit of risk. ARC Resources is currently generating about 0.19 per unit of volatility. If you would invest  2,514  in ARC Resources on October 6, 2024 and sell it today you would earn a total of  179.00  from holding ARC Resources or generate 7.12% return on investment over 90 days.

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

Gear Energy  vs.  ARC Resources

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

ARC Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ARC Resources are ranked lower than 4 (%) 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 February 2025.

Pair Trading with Gear Energy and ARC Resources

The main advantage of trading using opposite Gear Energy and ARC Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gear Energy 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 Gear Energy 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.