Correlation Between Strategic Allocation and Arbitrage Credit
Can any of the company-specific risk be diversified away by investing in both Strategic Allocation and Arbitrage Credit 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 Strategic Allocation and Arbitrage Credit into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Strategic Allocation Moderate and The Arbitrage Credit, you can compare the effects of market volatilities on Strategic Allocation and Arbitrage Credit 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 Strategic Allocation with a short position of Arbitrage Credit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation and Arbitrage Credit.
Diversification Opportunities for Strategic Allocation and Arbitrage Credit
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Strategic and Arbitrage is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Moderate and The Arbitrage Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrage Credit and Strategic Allocation 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 Strategic Allocation Moderate are associated (or correlated) with Arbitrage Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrage Credit has no effect on the direction of Strategic Allocation i.e., Strategic Allocation and Arbitrage Credit go up and down completely randomly.
Pair Corralation between Strategic Allocation and Arbitrage Credit
Assuming the 90 days horizon Strategic Allocation Moderate is expected to generate 5.97 times more return on investment than Arbitrage Credit. However, Strategic Allocation is 5.97 times more volatile than The Arbitrage Credit. It trades about 0.09 of its potential returns per unit of risk. The Arbitrage Credit is currently generating about 0.17 per unit of risk. If you would invest 675.00 in Strategic Allocation Moderate on September 13, 2024 and sell it today you would earn a total of 11.00 from holding Strategic Allocation Moderate or generate 1.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Strategic Allocation Moderate vs. The Arbitrage Credit
Performance |
| Timeline |
| Strategic Allocation |
| Arbitrage Credit |
Strategic Allocation and Arbitrage Credit Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Strategic Allocation and Arbitrage Credit
The main advantage of trading using opposite Strategic Allocation and Arbitrage Credit positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strategic Allocation position performs unexpectedly, Arbitrage Credit 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 Arbitrage Credit will offset losses from the drop in Arbitrage Credit's long position.The idea behind Strategic Allocation Moderate and The Arbitrage Credit 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.
| Arbitrage Credit vs. T Rowe Price | Arbitrage Credit vs. T Rowe Price | Arbitrage Credit vs. Alliancebernstein Bond | Arbitrage Credit vs. Ab Global Bond |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
Other Complementary Tools
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum |