Correlation Between Absolute Convertible and International Growth
Can any of the company-specific risk be diversified away by investing in both Absolute Convertible and International Growth 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 International Growth 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 International Growth Fund, you can compare the effects of market volatilities on Absolute Convertible and International Growth 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 International Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Convertible and International Growth.
Diversification Opportunities for Absolute Convertible and International Growth
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Absolute and International is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and International Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Growth 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 International Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Growth has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and International Growth go up and down completely randomly.
Pair Corralation between Absolute Convertible and International Growth
Assuming the 90 days horizon Absolute Convertible is expected to generate 3.3 times less return on investment than International Growth. But when comparing it to its historical volatility, Absolute Convertible Arbitrage is 14.77 times less risky than International Growth. It trades about 0.53 of its potential returns per unit of risk. International Growth Fund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,182 in International Growth Fund on September 4, 2024 and sell it today you would earn a total of 21.00 from holding International Growth Fund or generate 1.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Absolute Convertible Arbitrage vs. International Growth Fund
Performance |
| Timeline |
| Absolute Convertible |
| International Growth |
Absolute Convertible and International Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Absolute Convertible and International Growth
The main advantage of trading using opposite Absolute Convertible and International Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Convertible position performs unexpectedly, International Growth 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 International Growth will offset losses from the drop in International Growth's long position.The idea behind Absolute Convertible Arbitrage and International Growth 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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