Correlation Between Palomar Holdings and ARK Venture

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

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

Diversification Opportunities for Palomar Holdings and ARK Venture

0.42

Correlation Coefficient

Palomar Holdings  ARK Venture

Very weak diversification

The 3 months correlation between Palomar and ARK is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Palomar Holdings and ARK Venture Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Venture Fund and Palomar 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 Palomar Holdings are associated (or correlated) with ARK Venture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Venture Fund has no effect on the direction of Palomar Holdings i.e., Palomar Holdings and ARK Venture go up and down completely randomly.

Pair Corralation between Palomar Holdings and ARK Venture

Given the investment horizon of 90 days Palomar Holdings is expected to generate 5.45 times more return on investment than ARK Venture. However, Palomar Holdings is 5.45 times more volatile than ARK Venture Fund. It trades about 0.24 of its potential returns per unit of risk. ARK Venture Fund is currently generating about -0.15 per unit of risk. If you would invest  10,703  in Palomar Holdings on December 4, 2024 and sell it today you would earn a total of  2,027  from holding Palomar Holdings or generate 18.94% return on investment over 90 days.

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

Palomar Holdings  vs.  ARK Venture Fund

Palomar Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Palomar Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

ARK Venture Fund

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Venture Fund are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, ARK Venture is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Palomar Holdings and ARK Venture

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

The idea behind Palomar Holdings and ARK Venture Fund 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.