Correlation Between Warrior Met and Arch Resources

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

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

Diversification Opportunities for Warrior Met and Arch Resources

0.83

Correlation Coefficient

Warrior Met  Arch Resources

Very poor diversification

The 3 months correlation between Warrior and Arch is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Warrior Met Coal and Arch Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Resources and Warrior Met 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 Warrior Met Coal are associated (or correlated) with Arch Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Resources has no effect on the direction of Warrior Met i.e., Warrior Met and Arch Resources go up and down completely randomly.

Pair Corralation between Warrior Met and Arch Resources

Considering the 90-day investment horizon Warrior Met Coal is expected to generate 1.15 times more return on investment than Arch Resources. However, Warrior Met is 1.15 times more volatile than Arch Resources. It trades about 0.06 of its potential returns per unit of risk. Arch Resources is currently generating about 0.02 per unit of risk. If you would invest  3,069  in Warrior Met Coal on September 23, 2024 and sell it today you would earn a total of  2,424  from holding Warrior Met Coal or generate 78.98% return on investment over 90 days.

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

Warrior Met Coal  vs.  Arch Resources

Warrior Met Coal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Warrior Met Coal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Warrior Met is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Arch Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, Arch Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Warrior Met and Arch Resources

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

The idea behind Warrior Met Coal and Arch Resources 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.