Correlation Between The Merger and The Arbitrage
Can any of the company-specific risk be diversified away by investing in both The Merger and The Arbitrage 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 The Merger and The Arbitrage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Merger Fund and The Arbitrage Event Driven, you can compare the effects of market volatilities on The Merger and The Arbitrage 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 The Merger with a short position of The Arbitrage. Check out your portfolio center. Please also check ongoing floating volatility patterns of The Merger and The Arbitrage.
Diversification Opportunities for The Merger and The Arbitrage
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between The and The is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding The Merger Fund and The Arbitrage Event Driven in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrage Event and The Merger 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 The Merger Fund are associated (or correlated) with The Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrage Event has no effect on the direction of The Merger i.e., The Merger and The Arbitrage go up and down completely randomly.
Pair Corralation between The Merger and The Arbitrage
Assuming the 90 days horizon The Merger is expected to generate 1.19 times less return on investment than The Arbitrage. But when comparing it to its historical volatility, The Merger Fund is 1.36 times less risky than The Arbitrage. It trades about 0.11 of its potential returns per unit of risk. The Arbitrage Event Driven is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,112 in The Arbitrage Event Driven on September 1, 2024 and sell it today you would earn a total of 62.00 from holding The Arbitrage Event Driven or generate 5.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Merger Fund vs. The Arbitrage Event Driven
Performance |
| Timeline |
| Merger Fund |
| Arbitrage Event |
The Merger and The Arbitrage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with The Merger and The Arbitrage
The main advantage of trading using opposite The Merger and The Arbitrage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if The Merger position performs unexpectedly, The Arbitrage 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 The Arbitrage will offset losses from the drop in The Arbitrage's long position.| The Merger vs. Calamos Market Neutral | The Merger vs. Gateway Fund Class | The Merger vs. The Arbitrage Fund | The Merger vs. Neuberger Berman Long |
| The Arbitrage vs. The Arbitrage Fund | The Arbitrage vs. The Arbitrage Fund | The Arbitrage vs. The Arbitrage Fund | The Arbitrage vs. The Arbitrage Fund |
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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