Correlation Between Arch Resources and Alphabet

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

By analyzing existing cross correlation between Arch Resources and Alphabet Inc Class C, you can compare the effects of market volatilities on Arch Resources and Alphabet 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 Arch Resources with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arch Resources and Alphabet.

Diversification Opportunities for Arch Resources and Alphabet

0.82

Correlation Coefficient

Arch Resources  Alphabet

Very poor diversification

The 3 months correlation between Arch and Alphabet is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Arch Resources and Alphabet Inc Class C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class C and Arch Resources 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 Arch Resources are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class C has no effect on the direction of Arch Resources i.e., Arch Resources and Alphabet go up and down completely randomly.

Pair Corralation between Arch Resources and Alphabet

Given the investment horizon of 90 days Arch Resources is expected to generate 1.5 times more return on investment than Alphabet. However, Arch Resources is 1.5 times more volatile than Alphabet Inc Class C. It trades about 0.32 of its potential returns per unit of risk. Alphabet Inc Class C is currently generating about 0.02 per unit of risk. If you would invest  14,437  in Arch Resources on August 28, 2024 and sell it today you would earn a total of  3,118  from holding Arch Resources or generate 21.6% return on investment over 90 days.

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

Arch Resources  vs.  Alphabet Inc Class C

Arch Resources

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Resources are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, Arch Resources demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Alphabet Class C

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Alphabet is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arch Resources and Alphabet

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

The idea behind Arch Resources and Alphabet Inc Class C 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.