Correlation Between Secured Options and Quantitative Longshort

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

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

Diversification Opportunities for Secured Options and Quantitative Longshort

0.92

Correlation Coefficient

Secured Options  Quantitative Longshort

Almost no diversification

The 3 months correlation between Secured and Quantitative is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Secured Options Portfolio and Quantitative Longshort Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative Longshort and Secured Options 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 Secured Options Portfolio are associated (or correlated) with Quantitative Longshort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative Longshort has no effect on the direction of Secured Options i.e., Secured Options and Quantitative Longshort go up and down completely randomly.

Pair Corralation between Secured Options and Quantitative Longshort

Assuming the 90 days horizon Secured Options Portfolio is expected to under-perform the Quantitative Longshort. In addition to that, Secured Options is 1.23 times more volatile than Quantitative Longshort Equity. It trades about -0.21 of its total potential returns per unit of risk. Quantitative Longshort Equity is currently generating about -0.21 per unit of volatility. If you would invest  1,472  in Quantitative Longshort Equity on September 27, 2024 and sell it today you would lose (123.00) from holding Quantitative Longshort Equity or give up 8.36% of portfolio value over 90 days.

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

Secured Options Portfolio  vs.  Quantitative Longshort Equity

Secured Options Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Secured Options Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Quantitative Longshort

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Secured Options and Quantitative Longshort

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

The idea behind Secured Options Portfolio and Quantitative Longshort Equity 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.