Correlation Between Arima Communications and Chief Telecom

Can any of the company-specific risk be diversified away by investing in both Arima Communications and Chief Telecom 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 Arima Communications and Chief Telecom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arima Communications Corp and Chief Telecom, you can compare the effects of market volatilities on Arima Communications and Chief Telecom 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 Arima Communications with a short position of Chief Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arima Communications and Chief Telecom.

Diversification Opportunities for Arima Communications and Chief Telecom

0.34

Correlation Coefficient

Arima Communications  Chief Telecom

Weak diversification

The 3 months correlation between Arima and Chief is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Arima Communications Corp and Chief Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chief Telecom and Arima Communications 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 Arima Communications Corp are associated (or correlated) with Chief Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chief Telecom has no effect on the direction of Arima Communications i.e., Arima Communications and Chief Telecom go up and down completely randomly.

Pair Corralation between Arima Communications and Chief Telecom

Assuming the 90 days trading horizon Arima Communications Corp is expected to generate 1.78 times more return on investment than Chief Telecom. However, Arima Communications is 1.78 times more volatile than Chief Telecom. It trades about 0.84 of its potential returns per unit of risk. Chief Telecom is currently generating about 0.11 per unit of risk. If you would invest  950.00  in Arima Communications Corp on September 3, 2024 and sell it today you would earn a total of  1,260  from holding Arima Communications Corp or generate 132.63% return on investment over 90 days.

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

Arima Communications Corp  vs.  Chief Telecom

Arima Communications Corp

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Arima Communications Corp are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Arima Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Chief Telecom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chief Telecom has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chief Telecom is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Arima Communications and Chief Telecom

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

The idea behind Arima Communications Corp and Chief Telecom 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.