Correlation Between Arad and C Mer

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Can any of the company-specific risk be diversified away by investing in both Arad and C Mer 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 Arad and C Mer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arad and C Mer Industries, you can compare the effects of market volatilities on Arad and C Mer 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 Arad with a short position of C Mer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arad and C Mer.

Diversification Opportunities for Arad and C Mer

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Arad and CMER is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Arad and C Mer Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on C Mer Industries and Arad 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 Arad are associated (or correlated) with C Mer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of C Mer Industries has no effect on the direction of Arad i.e., Arad and C Mer go up and down completely randomly.

Pair Corralation between Arad and C Mer

Assuming the 90 days trading horizon Arad is expected to generate 0.42 times more return on investment than C Mer. However, Arad is 2.39 times less risky than C Mer. It trades about -0.1 of its potential returns per unit of risk. C Mer Industries is currently generating about -0.04 per unit of risk. If you would invest  514,500  in Arad on September 1, 2024 and sell it today you would lose (18,000) from holding Arad or give up 3.5% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Arad  vs.  C Mer Industries

 Performance 
       Timeline  
Arad 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Arad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
C Mer Industries 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in C Mer Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, C Mer sustained solid returns over the last few months and may actually be approaching a breakup point.

Arad and C Mer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Arad and C Mer

The main advantage of trading using opposite Arad and C Mer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arad position performs unexpectedly, C Mer 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 C Mer will offset losses from the drop in C Mer's long position.
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The idea behind Arad and C Mer Industries 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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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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