Correlation Between Absolute Convertible and Short Oil

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

Diversification Opportunities for Absolute Convertible and Short Oil

-0.6

Correlation Coefficient

Absolute Convertible  Short Oil

Excellent diversification

The 3 months correlation between Absolute and Short is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and Short Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Oil Gas 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 Short Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Oil Gas has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and Short Oil go up and down completely randomly.

Pair Corralation between Absolute Convertible and Short Oil

Assuming the 90 days horizon Absolute Convertible is expected to generate 523.0 times less return on investment than Short Oil. But when comparing it to its historical volatility, Absolute Convertible Arbitrage is 6.87 times less risky than Short Oil. It trades about 0.0 of its potential returns per unit of risk. Short Oil Gas is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,451  in Short Oil Gas on September 19, 2024 and sell it today you would earn a total of  42.00  from holding Short Oil Gas or generate 2.89% return on investment over 90 days.

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

Absolute Convertible Arbitrage  vs.  Short Oil Gas

Absolute Convertible

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Absolute Convertible Arbitrage has generated negative risk-adjusted returns adding no value to fund investors. 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.

Short Oil Gas

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Short Oil Gas are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Absolute Convertible and Short Oil

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

The idea behind Absolute Convertible Arbitrage and Short Oil Gas 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.