Correlation Between Arbitrum and Stacks

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

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

Diversification Opportunities for Arbitrum and Stacks

0.67

Correlation Coefficient

Arbitrum  Stacks

Poor diversification

The 3 months correlation between Arbitrum and Stacks is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Arbitrum and Stacks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stacks and Arbitrum 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 Arbitrum are associated (or correlated) with Stacks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stacks has no effect on the direction of Arbitrum i.e., Arbitrum and Stacks go up and down completely randomly.

Pair Corralation between Arbitrum and Stacks

Assuming the 90 days trading horizon Arbitrum is expected to generate 1.32 times more return on investment than Stacks. However, Arbitrum is 1.32 times more volatile than Stacks. It trades about 0.11 of its potential returns per unit of risk. Stacks is currently generating about 0.03 per unit of risk. If you would invest  32.00  in Arbitrum on April 20, 2025 and sell it today you would earn a total of  13.00  from holding Arbitrum or generate 40.63% return on investment over 90 days.

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

Arbitrum  vs.  Stacks

Arbitrum

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arbitrum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Arbitrum exhibited solid returns over the last few months and may actually be approaching a breakup point.

Stacks

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stacks are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Stacks may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Arbitrum and Stacks

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

The idea behind Arbitrum and Stacks 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.