Correlation Between Highland Merger and Vulcan Value

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Can any of the company-specific risk be diversified away by investing in both Highland Merger and Vulcan Value 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 Highland Merger and Vulcan Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Highland Merger Arbitrage and Vulcan Value Partners, you can compare the effects of market volatilities on Highland Merger and Vulcan Value 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 Highland Merger with a short position of Vulcan Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highland Merger and Vulcan Value.

Diversification Opportunities for Highland Merger and Vulcan Value

-0.62
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Highland and Vulcan is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Highland Merger Arbitrage and Vulcan Value Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Value Partners and Highland Merger 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 Highland Merger Arbitrage are associated (or correlated) with Vulcan Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Value Partners has no effect on the direction of Highland Merger i.e., Highland Merger and Vulcan Value go up and down completely randomly.

Pair Corralation between Highland Merger and Vulcan Value

Assuming the 90 days horizon Highland Merger is expected to generate 1.96 times less return on investment than Vulcan Value. But when comparing it to its historical volatility, Highland Merger Arbitrage is 14.44 times less risky than Vulcan Value. It trades about 0.62 of its potential returns per unit of risk. Vulcan Value Partners is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,177  in Vulcan Value Partners on October 20, 2024 and sell it today you would earn a total of  16.00  from holding Vulcan Value Partners or generate 1.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Highland Merger Arbitrage  vs.  Vulcan Value Partners

 Performance 
       Timeline  
Highland Merger Arbitrage 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Highland Merger Arbitrage are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Highland Merger is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Vulcan Value Partners 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Vulcan Value Partners 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.

Highland Merger and Vulcan Value Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Highland Merger and Vulcan Value

The main advantage of trading using opposite Highland Merger and Vulcan Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Highland Merger position performs unexpectedly, Vulcan Value 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 Vulcan Value will offset losses from the drop in Vulcan Value's long position.
The idea behind Highland Merger Arbitrage and Vulcan Value Partners 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.

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