Correlation Between Consumer Discretionary and ARK Next

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

By analyzing existing cross correlation between Consumer Discretionary Select and ARK Next Generation, you can compare the effects of market volatilities on Consumer Discretionary and ARK Next 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 Consumer Discretionary with a short position of ARK Next. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and ARK Next.

Diversification Opportunities for Consumer Discretionary and ARK Next

0.98

Correlation Coefficient

Consumer Discretionary  ARK Next

Almost no diversification

The 3 months correlation between Consumer and ARK is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and ARK Next Generation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Next Generation and Consumer Discretionary 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 Consumer Discretionary Select are associated (or correlated) with ARK Next. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Next Generation has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and ARK Next go up and down completely randomly.

Pair Corralation between Consumer Discretionary and ARK Next

Considering the 90-day investment horizon Consumer Discretionary is expected to generate 1.76 times less return on investment than ARK Next. But when comparing it to its historical volatility, Consumer Discretionary Select is 1.77 times less risky than ARK Next. It trades about 0.11 of its potential returns per unit of risk. ARK Next Generation is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,705  in ARK Next Generation on September 23, 2024 and sell it today you would earn a total of  4,564  from holding ARK Next Generation or generate 68.07% return on investment over 90 days.

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

Consumer Discretionary Select  vs.  ARK Next Generation

Consumer Discretionary

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent essential indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

ARK Next Generation

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Next Generation are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, ARK Next showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consumer Discretionary and ARK Next

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

The idea behind Consumer Discretionary Select and ARK Next Generation 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .