Correlation Between CLO and DUSK
Can any of the company-specific risk be diversified away by investing in both CLO and DUSK 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 CLO and DUSK into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CLO and DUSK, you can compare the effects of market volatilities on CLO and DUSK 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 CLO with a short position of DUSK. Check out your portfolio center. Please also check ongoing floating volatility patterns of CLO and DUSK.
Diversification Opportunities for CLO and DUSK
Significant diversification
The 3 months correlation between CLO and DUSK is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding CLO and DUSK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DUSK and CLO 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 CLO are associated (or correlated) with DUSK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DUSK has no effect on the direction of CLO i.e., CLO and DUSK go up and down completely randomly.
Pair Corralation between CLO and DUSK
Assuming the 90 days trading horizon CLO is expected to generate 21.06 times more return on investment than DUSK. However, CLO is 21.06 times more volatile than DUSK. It trades about 0.23 of its potential returns per unit of risk. DUSK is currently generating about -0.41 per unit of risk. If you would invest 0.07 in CLO on November 8, 2024 and sell it today you would lose (0.06) from holding CLO or give up 82.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CLO vs. DUSK
Performance |
| Timeline |
| CLO |
| DUSK |
CLO and DUSK Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CLO and DUSK
The main advantage of trading using opposite CLO and DUSK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CLO position performs unexpectedly, DUSK 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 DUSK will offset losses from the drop in DUSK's long position.The idea behind CLO and DUSK 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.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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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