Correlation Between CLO and VTC

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

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

Diversification Opportunities for CLO and VTC

0.12

Correlation Coefficient

CLO  VTC

Average diversification

The 3 months correlation between CLO and VTC is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding CLO and VTC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VTC and CLO 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 CLO are associated (or correlated) with VTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VTC has no effect on the direction of CLO i.e., CLO and VTC go up and down completely randomly.

Pair Corralation between CLO and VTC

Assuming the 90 days trading horizon CLO is expected to generate 28.91 times more return on investment than VTC. However, CLO is 28.91 times more volatile than VTC. It trades about 0.31 of its potential returns per unit of risk. VTC is currently generating about 0.01 per unit of risk. If you would invest  0.01  in CLO on September 2, 2024 and sell it today you would earn a total of  0.00  from holding CLO or generate 40.0% return on investment over 90 days.

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

CLO  vs.  VTC

CLO

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CLO are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CLO exhibited solid returns over the last few months and may actually be approaching a breakup point.

VTC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VTC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, VTC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CLO and VTC

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

The idea behind CLO and VTC 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.