Correlation Between Arbitrage Credit and Arbitrage Event

Can any of the company-specific risk be diversified away by investing in both Arbitrage Credit and Arbitrage Event 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 Arbitrage Credit and Arbitrage Event into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Arbitrage Credit and The Arbitrage Event Driven, you can compare the effects of market volatilities on Arbitrage Credit and Arbitrage Event 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 Arbitrage Credit with a short position of Arbitrage Event. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arbitrage Credit and Arbitrage Event.

Diversification Opportunities for Arbitrage Credit and Arbitrage Event

0.01

Correlation Coefficient

Arbitrage Credit  Arbitrage Event

Significant diversification

The 3 months correlation between Arbitrage and Arbitrage is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding The Arbitrage Credit 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 Arbitrage Credit 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 Arbitrage Credit are associated (or correlated) with Arbitrage Event. 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 Arbitrage Credit i.e., Arbitrage Credit and Arbitrage Event go up and down completely randomly.

Pair Corralation between Arbitrage Credit and Arbitrage Event

Assuming the 90 days horizon The Arbitrage Credit is expected to generate 0.37 times more return on investment than Arbitrage Event. However, The Arbitrage Credit is 2.67 times less risky than Arbitrage Event. It trades about 0.14 of its potential returns per unit of risk. The Arbitrage Event Driven is currently generating about -0.04 per unit of risk. If you would invest  974.00  in The Arbitrage Credit on September 13, 2024 and sell it today you would earn a total of  7.00  from holding The Arbitrage Credit or generate 0.72% return on investment over 90 days.

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

The Arbitrage Credit  vs.  The Arbitrage Event Driven

Arbitrage Credit

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Credit are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Arbitrage Credit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Arbitrage Event

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Arbitrage Event Driven has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Arbitrage Event is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Arbitrage Credit and Arbitrage Event

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

The idea behind The Arbitrage Credit and The Arbitrage Event Driven 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.