Correlation Between Absolute Convertible and Foreign Value
Can any of the company-specific risk be diversified away by investing in both Absolute Convertible and Foreign Value 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 Foreign Value 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 Foreign Value Fund, you can compare the effects of market volatilities on Absolute Convertible and Foreign Value 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 Foreign Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Convertible and Foreign Value.
Diversification Opportunities for Absolute Convertible and Foreign Value
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Absolute and Foreign is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and Foreign Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Value 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 Foreign Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Value has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and Foreign Value go up and down completely randomly.
Pair Corralation between Absolute Convertible and Foreign Value
Assuming the 90 days horizon Absolute Convertible is expected to generate 1.96 times less return on investment than Foreign Value. But when comparing it to its historical volatility, Absolute Convertible Arbitrage is 13.21 times less risky than Foreign Value. It trades about 0.56 of its potential returns per unit of risk. Foreign Value Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 944.00 in Foreign Value Fund on September 4, 2024 and sell it today you would earn a total of 150.00 from holding Foreign Value Fund or generate 15.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Absolute Convertible Arbitrage vs. Foreign Value Fund
Performance |
| Timeline |
| Absolute Convertible |
| Foreign Value |
Absolute Convertible and Foreign Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Absolute Convertible and Foreign Value
The main advantage of trading using opposite Absolute Convertible and Foreign Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Convertible position performs unexpectedly, Foreign Value 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 Foreign Value will offset losses from the drop in Foreign Value's long position.The idea behind Absolute Convertible Arbitrage and Foreign Value Fund 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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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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