Correlation Between Dunham Enhanced and Arbitrage Fund

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

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

Diversification Opportunities for Dunham Enhanced and Arbitrage Fund

0.57

Correlation Coefficient

Dunham Enhanced  Arbitrage Fund

Very weak diversification

The 3 months correlation between Dunham and Arbitrage is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Dunham Enhanced Market and The Arbitrage Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrage Fund and Dunham Enhanced 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 Dunham Enhanced Market are associated (or correlated) with Arbitrage Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrage Fund has no effect on the direction of Dunham Enhanced i.e., Dunham Enhanced and Arbitrage Fund go up and down completely randomly.

Pair Corralation between Dunham Enhanced and Arbitrage Fund

Assuming the 90 days horizon Dunham Enhanced Market is expected to generate 3.84 times more return on investment than Arbitrage Fund. However, Dunham Enhanced is 3.84 times more volatile than The Arbitrage Fund. It trades about 0.19 of its potential returns per unit of risk. The Arbitrage Fund is currently generating about 0.04 per unit of risk. If you would invest  1,880  in Dunham Enhanced Market on September 12, 2024 and sell it today you would earn a total of  188.00  from holding Dunham Enhanced Market or generate 10.0% return on investment over 90 days.

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

Dunham Enhanced Market  vs.  The Arbitrage Fund

Dunham Enhanced Market

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dunham Enhanced Market are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dunham Enhanced may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arbitrage Fund

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Dunham Enhanced and Arbitrage Fund

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

The idea behind Dunham Enhanced Market and The Arbitrage Fund 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.