Correlation Between Absolute Convertible and Small Cap
Can any of the company-specific risk be diversified away by investing in both Absolute Convertible and Small Cap 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 Small Cap 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 Small Cap Stock, you can compare the effects of market volatilities on Absolute Convertible and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Convertible and Small Cap.
Diversification Opportunities for Absolute Convertible and Small Cap
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Absolute and Small is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and Small Cap go up and down completely randomly.
Pair Corralation between Absolute Convertible and Small Cap
Assuming the 90 days horizon Absolute Convertible Arbitrage is expected to generate 0.11 times more return on investment than Small Cap. However, Absolute Convertible Arbitrage is 9.24 times less risky than Small Cap. It trades about 0.04 of its potential returns per unit of risk. Small Cap Stock is currently generating about -0.03 per unit of risk. If you would invest 1,116 in Absolute Convertible Arbitrage on October 18, 2024 and sell it today you would earn a total of 5.00 from holding Absolute Convertible Arbitrage or generate 0.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Absolute Convertible Arbitrage vs. Small Cap Stock
Performance |
| Timeline |
| Absolute Convertible |
| Small Cap Stock |
Absolute Convertible and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Absolute Convertible and Small Cap
The main advantage of trading using opposite Absolute Convertible and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Convertible position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Absolute Convertible vs. Maryland Tax Free Bond | Absolute Convertible vs. Morningstar Defensive Bond | Absolute Convertible vs. Leader Short Term Bond | Absolute Convertible vs. Georgia Tax Free Bond |
| Small Cap vs. Columbia Convertible Securities | Small Cap vs. Absolute Convertible Arbitrage | Small Cap vs. Allianzgi Convertible Income | Small Cap vs. Advent Claymore Convertible |
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 CEOs Directory module to screen CEOs from public companies around the world.
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