Correlation Between Oracle and ARC Resources

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

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

Diversification Opportunities for Oracle and ARC Resources

0.07

Correlation Coefficient

Oracle  ARC Resources

Significant diversification

The 3 months correlation between Oracle and ARC is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Oracle and ARC Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARC Resources and Oracle 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 Oracle 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 Oracle i.e., Oracle and ARC Resources go up and down completely randomly.

Pair Corralation between Oracle and ARC Resources

Given the investment horizon of 90 days Oracle is expected to generate 0.61 times more return on investment than ARC Resources. However, Oracle is 1.63 times less risky than ARC Resources. It trades about 0.1 of its potential returns per unit of risk. ARC Resources is currently generating about -0.1 per unit of risk. If you would invest  7,839  in Oracle on September 3, 2024 and sell it today you would earn a total of  10,645  from holding Oracle or generate 135.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	8.28%
Values	Daily Returns

Oracle  vs.  ARC Resources

Oracle

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal fundamental indicators, Oracle disclosed solid returns over the last few months and may actually be approaching a breakup point.

ARC Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Oracle and ARC Resources

The main advantage of trading using opposite Oracle and ARC Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oracle 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 Oracle 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.

Check out your portfolio center.

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.