Correlation Between CLO and AEON

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

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

Diversification Opportunities for CLO and AEON

-0.34

Correlation Coefficient

CLO  AEON

Very good diversification

The 3 months correlation between CLO and AEON is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding CLO and AEON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEON 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 AEON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEON has no effect on the direction of CLO i.e., CLO and AEON go up and down completely randomly.

Pair Corralation between CLO and AEON

Assuming the 90 days trading horizon CLO is expected to generate 37.55 times more return on investment than AEON. However, CLO is 37.55 times more volatile than AEON. It trades about 0.3 of its potential returns per unit of risk. AEON is currently generating about 0.29 per unit of risk. If you would invest  0.07  in CLO on August 30, 2024 and sell it today you would lose (0.07) from holding CLO or give up 91.76% of portfolio value over 90 days.

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

CLO  vs.  AEON

CLO

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CLO are ranked lower than 22 (%) 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.

AEON

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AEON are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, AEON exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CLO and AEON

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

The idea behind CLO and AEON 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.