Correlation Between ARCA Oil and Kite Realty

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

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

Diversification Opportunities for ARCA Oil and Kite Realty

0.45

Correlation Coefficient

ARCA Oil  Kite Realty

Very weak diversification

The 3 months correlation between ARCA and Kite is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding ARCA Oil and Kite Realty Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kite Realty Group and ARCA Oil 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 ARCA Oil are associated (or correlated) with Kite Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kite Realty Group has no effect on the direction of ARCA Oil i.e., ARCA Oil and Kite Realty go up and down completely randomly.

Pair Corralation between ARCA Oil and Kite Realty

Assuming the 90 days trading horizon ARCA Oil is expected to generate 20.12 times less return on investment than Kite Realty. But when comparing it to its historical volatility, ARCA Oil is 1.1 times less risky than Kite Realty. It trades about 0.0 of its potential returns per unit of risk. Kite Realty Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,888  in Kite Realty Group on September 28, 2024 and sell it today you would earn a total of  617.00  from holding Kite Realty Group or generate 32.68% return on investment over 90 days.

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

ARCA Oil  vs.  Kite Realty Group

Pair Trading with ARCA Oil and Kite Realty

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

The idea behind ARCA Oil and Kite Realty Group 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.