Correlation Between Absolute Capital and Absolute Convertible

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

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

Diversification Opportunities for Absolute Capital and Absolute Convertible

0.41

Correlation Coefficient

Absolute Capital  Absolute Convertible

Very weak diversification

The 3 months correlation between Absolute and Absolute is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Capital Opportunities and Absolute Convertible Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Convertible and Absolute Capital 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 Capital Opportunities are associated (or correlated) with Absolute Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Convertible has no effect on the direction of Absolute Capital i.e., Absolute Capital and Absolute Convertible go up and down completely randomly.

Pair Corralation between Absolute Capital and Absolute Convertible

Assuming the 90 days horizon Absolute Capital Opportunities is expected to generate 1.7 times more return on investment than Absolute Convertible. However, Absolute Capital is 1.7 times more volatile than Absolute Convertible Arbitrage. It trades about 0.07 of its potential returns per unit of risk. Absolute Convertible Arbitrage is currently generating about 0.02 per unit of risk. If you would invest  1,042  in Absolute Capital Opportunities on September 14, 2024 and sell it today you would earn a total of  13.00  from holding Absolute Capital Opportunities or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Absolute Capital Opportunities  vs.  Absolute Convertible Arbitrage

Absolute Capital Opp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Capital Opportunities are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Absolute Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Absolute Convertible

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Convertible Arbitrage are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Absolute Convertible 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 Capital and Absolute Convertible

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

The idea behind Absolute Capital Opportunities and Absolute Convertible Arbitrage 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.