Correlation Between Arca Biopharma and LINGYI ITECH

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

Diversification Opportunities for Arca Biopharma and LINGYI ITECH

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Arca Biopharma and LINGYI is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Arca Biopharma and LINGYI ITECH GUAN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LINGYI ITECH GUAN and Arca Biopharma 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 Arca Biopharma are associated (or correlated) with LINGYI ITECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LINGYI ITECH GUAN has no effect on the direction of Arca Biopharma i.e., Arca Biopharma and LINGYI ITECH go up and down completely randomly.

Pair Corralation between Arca Biopharma and LINGYI ITECH

Given the investment horizon of 90 days Arca Biopharma is expected to under-perform the LINGYI ITECH. In addition to that, Arca Biopharma is 1.07 times more volatile than LINGYI ITECH GUAN. It trades about -0.06 of its total potential returns per unit of risk. LINGYI ITECH GUAN is currently generating about 0.2 per unit of volatility. If you would invest  489.00  in LINGYI ITECH GUAN on May 13, 2022 and sell it today you would earn a total of  31.00  from holding LINGYI ITECH GUAN or generate 6.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy81.82%
ValuesDaily Returns

Arca Biopharma  vs.  LINGYI ITECH GUAN

 Performance (%) 
       Timeline  
Arca Biopharma 
Arca Biopharma Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Arca Biopharma are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, Arca Biopharma is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Arca Biopharma Price Channel

LINGYI ITECH GUAN 
LINGYI Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in LINGYI ITECH GUAN are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LINGYI ITECH sustained solid returns over the last few months and may actually be approaching a breakup point.

LINGYI Price Channel

Arca Biopharma and LINGYI ITECH Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Arca Biopharma and LINGYI ITECH

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

Arca Biopharma

Pair trading matchups for Arca Biopharma

The idea behind Arca Biopharma and LINGYI ITECH GUAN 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.

LINGYI ITECH GUAN

Pair trading matchups for LINGYI ITECH

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Starbucks Corp vs. LINGYI ITECH
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against LINGYI ITECH as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. LINGYI ITECH's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, LINGYI ITECH's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to LINGYI ITECH GUAN.
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 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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