Correlation Between LB Foster and Arm Holdings

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

By analyzing existing cross correlation between LB Foster and Arm Holdings plc, you can compare the effects of market volatilities on LB Foster and Arm Holdings 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 LB Foster with a short position of Arm Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of LB Foster and Arm Holdings.

Diversification Opportunities for LB Foster and Arm Holdings

0.75

Correlation Coefficient

LB Foster  Arm Holdings

Poor diversification

The 3 months correlation between FSTR and Arm is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Arm Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arm Holdings plc and LB Foster 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 LB Foster are associated (or correlated) with Arm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arm Holdings plc has no effect on the direction of LB Foster i.e., LB Foster and Arm Holdings go up and down completely randomly.

Pair Corralation between LB Foster and Arm Holdings

Given the investment horizon of 90 days LB Foster is expected to generate 1.14 times less return on investment than Arm Holdings. But when comparing it to its historical volatility, LB Foster is 1.38 times less risky than Arm Holdings. It trades about 0.1 of its potential returns per unit of risk. Arm Holdings plc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  12,327  in Arm Holdings plc on May 2, 2025 and sell it today you would earn a total of  1,811  from holding Arm Holdings plc or generate 14.69% return on investment over 90 days.

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

LB Foster  vs.  Arm Holdings plc

LB Foster

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Arm Holdings plc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arm Holdings plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Arm Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LB Foster and Arm Holdings

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

The idea behind LB Foster and Arm Holdings plc 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.