Correlation Between Herc Holdings and Arm Holdings

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

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

Diversification Opportunities for Herc Holdings and Arm Holdings

-0.05

Correlation Coefficient

Herc Holdings  Arm Holdings

Good diversification

The 3 months correlation between Herc and Arm is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and Arm Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arm Holdings plc and Herc Holdings 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 Herc Holdings are associated (or correlated) with Arm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arm Holdings plc has no effect on the direction of Herc Holdings i.e., Herc Holdings and Arm Holdings go up and down completely randomly.

Pair Corralation between Herc Holdings and Arm Holdings

Considering the 90-day investment horizon Herc Holdings is expected to generate 3.67 times less return on investment than Arm Holdings. But when comparing it to its historical volatility, Herc Holdings is 1.81 times less risky than Arm Holdings. It trades about 0.18 of its potential returns per unit of risk. Arm Holdings plc is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  13,179  in Arm Holdings plc on October 25, 2024 and sell it today you would earn a total of  4,814  from holding Arm Holdings plc or generate 36.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Herc Holdings  vs.  Arm Holdings plc

Herc Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Herc Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Herc Holdings is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Arm Holdings plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arm Holdings plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Arm Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Herc Holdings and Arm Holdings

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

The idea behind Herc Holdings and Arm Holdings plc 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 CEOs Directory module to screen CEOs from public companies around the world.