Correlation Between Highland Merger and Highland Small

Can any of the company-specific risk be diversified away by investing in both Highland Merger and Highland Small 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 Highland Small 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 Highland Small Cap Equity, you can compare the effects of market volatilities on Highland Merger and Highland Small 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 Highland Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highland Merger and Highland Small.

Diversification Opportunities for Highland Merger and Highland Small

-0.6

Correlation Coefficient

Highland Merger  Highland Small

Excellent diversification

The 3 months correlation between HIGHLAND and Highland is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Highland Merger Arbitrage and Highland Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Small Cap 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 Highland Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Small Cap has no effect on the direction of Highland Merger i.e., Highland Merger and Highland Small go up and down completely randomly.

Pair Corralation between Highland Merger and Highland Small

Assuming the 90 days horizon Highland Merger Arbitrage is expected to generate 0.08 times more return on investment than Highland Small. However, Highland Merger Arbitrage is 13.24 times less risky than Highland Small. It trades about 0.24 of its potential returns per unit of risk. Highland Small Cap Equity is currently generating about -0.11 per unit of risk. If you would invest  1,856  in Highland Merger Arbitrage on December 30, 2024 and sell it today you would earn a total of  21.00  from holding Highland Merger Arbitrage or generate 1.13% return on investment over 90 days.

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

Highland Merger Arbitrage  vs.  Highland Small Cap Equity

Highland Merger Arbitrage

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Highland Merger Arbitrage are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Highland Merger is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Highland Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Highland Small Cap Equity 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.

Pair Trading with Highland Merger and Highland Small

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

The idea behind Highland Merger Arbitrage and Highland Small Cap 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.