Correlation Between Absolute Convertible and Rational Special
Can any of the company-specific risk be diversified away by investing in both Absolute Convertible and Rational Special 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 Absolute Convertible and Rational Special into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Absolute Convertible Arbitrage and Rational Special Situations, you can compare the effects of market volatilities on Absolute Convertible and Rational Special 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 Absolute Convertible with a short position of Rational Special. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Convertible and Rational Special.
Diversification Opportunities for Absolute Convertible and Rational Special
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Absolute and Rational is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and Rational Special Situations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Special Sit and Absolute Convertible 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 Absolute Convertible Arbitrage are associated (or correlated) with Rational Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Special Sit has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and Rational Special go up and down completely randomly.
Pair Corralation between Absolute Convertible and Rational Special
Assuming the 90 days horizon Absolute Convertible Arbitrage is expected to generate 0.31 times more return on investment than Rational Special. However, Absolute Convertible Arbitrage is 3.21 times less risky than Rational Special. It trades about 0.53 of its potential returns per unit of risk. Rational Special Situations is currently generating about 0.1 per unit of risk. If you would invest 1,144 in Absolute Convertible Arbitrage on September 4, 2024 and sell it today you would earn a total of 6.00 from holding Absolute Convertible Arbitrage or generate 0.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
Absolute Convertible Arbitrage vs. Rational Special Situations
Performance |
| Timeline |
| Absolute Convertible |
| Rational Special Sit |
Absolute Convertible and Rational Special Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Absolute Convertible and Rational Special
The main advantage of trading using opposite Absolute Convertible and Rational Special positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Convertible position performs unexpectedly, Rational Special 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 Rational Special will offset losses from the drop in Rational Special's long position.The idea behind Absolute Convertible Arbitrage and Rational Special Situations 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.
| Rational Special vs. Rational Dynamic Momentum | Rational Special vs. Rational Dynamic Momentum | Rational Special vs. Rational Dynamic Momentum | Rational Special vs. Rational Special Situations |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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