Correlation Between ARK Next and Principal Active

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

By analyzing existing cross correlation between ARK Next Generation and Principal Active Global, you can compare the effects of market volatilities on ARK Next and Principal Active 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 ARK Next with a short position of Principal Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARK Next and Principal Active.

Diversification Opportunities for ARK Next and Principal Active

0.79

Correlation Coefficient

ARK Next  Principal Active

Poor diversification

The 3 months correlation between ARK and Principal is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding ARK Next Generation and Principal Active Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Active Global and ARK Next 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 ARK Next Generation are associated (or correlated) with Principal Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Active Global has no effect on the direction of ARK Next i.e., ARK Next and Principal Active go up and down completely randomly.

Pair Corralation between ARK Next and Principal Active

Given the investment horizon of 90 days ARK Next Generation is expected to under-perform the Principal Active. In addition to that, ARK Next is 2.6 times more volatile than Principal Active Global. It trades about -0.12 of its total potential returns per unit of risk. Principal Active Global is currently generating about -0.04 per unit of volatility. If you would invest  2,409  in Principal Active Global on February 3, 2024 and sell it today you would lose (16.00) from holding Principal Active Global or give up 0.66% of portfolio value over 90 days.

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

ARK Next Generation  vs.  Principal Active Global

ARK Next Generation

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Next Generation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward-looking signals, ARK Next may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Principal Active Global

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Active Global are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Principal Active is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ARK Next and Principal Active

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

The idea behind ARK Next Generation and Principal Active Global 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.