Correlation Between Arbitrum and DENT
Can any of the company-specific risk be diversified away by investing in both Arbitrum and DENT 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 Arbitrum and DENT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arbitrum and DENT, you can compare the effects of market volatilities on Arbitrum and DENT 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 Arbitrum with a short position of DENT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arbitrum and DENT.
Diversification Opportunities for Arbitrum and DENT
Almost no diversification
The 3 months correlation between Arbitrum and DENT is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Arbitrum and DENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENT and Arbitrum 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 Arbitrum are associated (or correlated) with DENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENT has no effect on the direction of Arbitrum i.e., Arbitrum and DENT go up and down completely randomly.
Pair Corralation between Arbitrum and DENT
Assuming the 90 days trading horizon Arbitrum is expected to generate 1.41 times more return on investment than DENT. However, Arbitrum is 1.41 times more volatile than DENT. It trades about 0.38 of its potential returns per unit of risk. DENT is currently generating about 0.44 per unit of risk. If you would invest 51.00 in Arbitrum on August 26, 2024 and sell it today you would earn a total of 35.00 from holding Arbitrum or generate 68.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Arbitrum vs. DENT
Performance |
| Timeline |
| Arbitrum |
| DENT |
Arbitrum and DENT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Arbitrum and DENT
The main advantage of trading using opposite Arbitrum and DENT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arbitrum position performs unexpectedly, DENT 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 DENT will offset losses from the drop in DENT's long position.The idea behind Arbitrum and DENT 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.Check out your portfolio center.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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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