Correlation Between Simon Property and ARCA Oil

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

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

Diversification Opportunities for Simon Property and ARCA Oil

-0.01

Correlation Coefficient

Simon Property  ARCA Oil

Good diversification

The 3 months correlation between Simon and ARCA is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Simon Property Group and ARCA Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Oil and Simon Property 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 Simon Property Group are associated (or correlated) with ARCA Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Oil has no effect on the direction of Simon Property i.e., Simon Property and ARCA Oil go up and down completely randomly.

Pair Corralation between Simon Property and ARCA Oil

Considering the 90-day investment horizon Simon Property Group is expected to generate 1.04 times more return on investment than ARCA Oil. However, Simon Property is 1.04 times more volatile than ARCA Oil. It trades about -0.11 of its potential returns per unit of risk. ARCA Oil is currently generating about -0.24 per unit of risk. If you would invest  17,857  in Simon Property Group on October 4, 2024 and sell it today you would lose (636.00) from holding Simon Property Group or give up 3.56% of portfolio value over 90 days.

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

Simon Property Group  vs.  ARCA Oil

Pair Trading with Simon Property and ARCA Oil

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

The idea behind Simon Property Group and ARCA Oil 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.