Correlation Between ARCA Oil and Titan Machinery

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

By analyzing existing cross correlation between ARCA Oil and Titan Machinery, you can compare the effects of market volatilities on ARCA Oil and Titan Machinery 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 Titan Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARCA Oil and Titan Machinery.

Diversification Opportunities for ARCA Oil and Titan Machinery

0.19

Correlation Coefficient

ARCA Oil  Titan Machinery

Average diversification

The 3 months correlation between ARCA and Titan is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding ARCA Oil and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery 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 Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of ARCA Oil i.e., ARCA Oil and Titan Machinery go up and down completely randomly.

Pair Corralation between ARCA Oil and Titan Machinery

Assuming the 90 days trading horizon ARCA Oil is expected to under-perform the Titan Machinery. But the index apears to be less risky and, when comparing its historical volatility, ARCA Oil is 2.23 times less risky than Titan Machinery. The index trades about -0.1 of its potential returns per unit of risk. The Titan Machinery is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,393  in Titan Machinery on September 29, 2024 and sell it today you would earn a total of  20.00  from holding Titan Machinery or generate 1.44% return on investment over 90 days.

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

ARCA Oil  vs.  Titan Machinery

Pair Trading with ARCA Oil and Titan Machinery

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

The idea behind ARCA Oil and Titan Machinery 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.