Correlation Between Financial Services and Absolute Convertible
Can any of the company-specific risk be diversified away by investing in both Financial Services and Absolute Convertible 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 Financial Services and Absolute Convertible into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Services Fund and Absolute Convertible Arbitrage, you can compare the effects of market volatilities on Financial Services and Absolute Convertible 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 Financial Services with a short position of Absolute Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Services and Absolute Convertible.
Diversification Opportunities for Financial Services and Absolute Convertible
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Financial and Absolute is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Absolute Convertible Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Convertible and Financial Services 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 Financial Services Fund are associated (or correlated) with Absolute Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Convertible has no effect on the direction of Financial Services i.e., Financial Services and Absolute Convertible go up and down completely randomly.
Pair Corralation between Financial Services and Absolute Convertible
Assuming the 90 days horizon Financial Services Fund is expected to generate 18.35 times more return on investment than Absolute Convertible. However, Financial Services is 18.35 times more volatile than Absolute Convertible Arbitrage. It trades about 0.21 of its potential returns per unit of risk. Absolute Convertible Arbitrage is currently generating about 0.63 per unit of risk. If you would invest 5,986 in Financial Services Fund on September 3, 2024 and sell it today you would earn a total of 1,526 from holding Financial Services Fund or generate 25.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Services Fund vs. Absolute Convertible Arbitrage
Performance |
| Timeline |
| Financial Services |
| Absolute Convertible |
Financial Services and Absolute Convertible Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Services and Absolute Convertible
The main advantage of trading using opposite Financial Services and Absolute Convertible positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services position performs unexpectedly, Absolute Convertible 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 Absolute Convertible will offset losses from the drop in Absolute Convertible's long position.| Financial Services vs. Absolute Convertible Arbitrage | Financial Services vs. Rationalpier 88 Convertible | Financial Services vs. Calamos Dynamic Convertible | Financial Services vs. Virtus Convertible |
| Absolute Convertible vs. Dunham Porategovernment Bond | Absolute Convertible vs. John Hancock Government | Absolute Convertible vs. Government Securities Fund | Absolute Convertible vs. Ab Government Exchange |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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