Correlation Between Absolute Convertible and James Alpha

Can any of the company-specific risk be diversified away by investing in both Absolute Convertible and James Alpha 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 James Alpha 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 James Alpha Structured, you can compare the effects of market volatilities on Absolute Convertible and James Alpha 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 James Alpha. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Convertible and James Alpha.

Diversification Opportunities for Absolute Convertible and James Alpha

0.82

Correlation Coefficient

Absolute Convertible  James Alpha

Very poor diversification

The 3 months correlation between Absolute and James is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and James Alpha Structured in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on James Alpha Structured 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 James Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of James Alpha Structured has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and James Alpha go up and down completely randomly.

Pair Corralation between Absolute Convertible and James Alpha

Assuming the 90 days horizon Absolute Convertible Arbitrage is expected to generate 0.45 times more return on investment than James Alpha. However, Absolute Convertible Arbitrage is 2.21 times less risky than James Alpha. It trades about 0.49 of its potential returns per unit of risk. James Alpha Structured is currently generating about 0.09 per unit of risk. If you would invest  1,133  in Absolute Convertible Arbitrage on September 14, 2024 and sell it today you would earn a total of  18.00  from holding Absolute Convertible Arbitrage or generate 1.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Absolute Convertible Arbitrage  vs.  James Alpha Structured

Absolute Convertible

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Convertible Arbitrage are ranked lower than 38 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Absolute Convertible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

James Alpha Structured

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in James Alpha Structured are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, James Alpha is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Absolute Convertible and James Alpha

The main advantage of trading using opposite Absolute Convertible and James Alpha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Convertible position performs unexpectedly, James Alpha 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 James Alpha will offset losses from the drop in James Alpha's long position.

The idea behind Absolute Convertible Arbitrage and James Alpha Structured 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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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..