Correlation Between VF and Arbitrum
Can any of the company-specific risk be diversified away by investing in both VF and Arbitrum 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 VF and Arbitrum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VF Corporation and Arbitrum, you can compare the effects of market volatilities on VF and Arbitrum 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 VF with a short position of Arbitrum. Check out your portfolio center. Please also check ongoing floating volatility patterns of VF and Arbitrum.
Diversification Opportunities for VF and Arbitrum
Pay attention - limited upside
The 3 months correlation between VF and Arbitrum is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding VF Corp. and Arbitrum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrum and VF 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 VF Corporation are associated (or correlated) with Arbitrum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrum has no effect on the direction of VF i.e., VF and Arbitrum go up and down completely randomly.
Pair Corralation between VF and Arbitrum
Considering the 90-day investment horizon VF Corporation is expected to under-perform the Arbitrum. But the stock apears to be less risky and, when comparing its historical volatility, VF Corporation is 1.27 times less risky than Arbitrum. The stock trades about -0.27 of its potential returns per unit of risk. The Arbitrum is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 43.00 in Arbitrum on December 8, 2024 and sell it today you would lose (3.00) from holding Arbitrum or give up 6.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
VF Corp. vs. Arbitrum
Performance |
| Timeline |
| VF Corporation |
| Arbitrum |
VF and Arbitrum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with VF and Arbitrum
The main advantage of trading using opposite VF and Arbitrum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VF position performs unexpectedly, Arbitrum 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 Arbitrum will offset losses from the drop in Arbitrum's long position.The idea behind VF Corporation and Arbitrum 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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