Correlation Between ARDR and STRAX
Can any of the company-specific risk be diversified away by investing in both ARDR and STRAX 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 ARDR and STRAX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ARDR and STRAX, you can compare the effects of market volatilities on ARDR and STRAX 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 ARDR with a short position of STRAX. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARDR and STRAX.
Diversification Opportunities for ARDR and STRAX
Poor diversification
The 3 months correlation between ARDR and STRAX is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ARDR and STRAX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STRAX and ARDR 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 ARDR are associated (or correlated) with STRAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STRAX has no effect on the direction of ARDR i.e., ARDR and STRAX go up and down completely randomly.
Pair Corralation between ARDR and STRAX
Assuming the 90 days trading horizon ARDR is expected to generate 0.93 times more return on investment than STRAX. However, ARDR is 1.07 times less risky than STRAX. It trades about 0.04 of its potential returns per unit of risk. STRAX is currently generating about -0.04 per unit of risk. If you would invest 7.79 in ARDR on August 24, 2024 and sell it today you would earn a total of 1.76 from holding ARDR or generate 22.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ARDR vs. STRAX
Performance |
| Timeline |
| ARDR |
| STRAX |
ARDR and STRAX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ARDR and STRAX
The main advantage of trading using opposite ARDR and STRAX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARDR position performs unexpectedly, STRAX 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 STRAX will offset losses from the drop in STRAX's long position.The idea behind ARDR and STRAX 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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