Correlation Between Highland Small-cap and Highland Merger

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

By analyzing existing cross correlation between Highland Small Cap Equity and Highland Merger Arbitrage, you can compare the effects of market volatilities on Highland Small-cap and Highland Merger 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 Small-cap with a short position of Highland Merger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highland Small-cap and Highland Merger.

Diversification Opportunities for Highland Small-cap and Highland Merger

0.66

Correlation Coefficient

Highland Small-cap  Highland Merger

Poor diversification

The 3 months correlation between Highland and Highland is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Highland Small Cap Equity and Highland Merger Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Merger Arbitrage and Highland Small-cap 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 Small Cap Equity are associated (or correlated) with Highland Merger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Merger Arbitrage has no effect on the direction of Highland Small-cap i.e., Highland Small-cap and Highland Merger go up and down completely randomly.

Pair Corralation between Highland Small-cap and Highland Merger

Assuming the 90 days horizon Highland Small Cap Equity is expected to generate 4.91 times more return on investment than Highland Merger. However, Highland Small-cap is 4.91 times more volatile than Highland Merger Arbitrage. It trades about 0.18 of its potential returns per unit of risk. Highland Merger Arbitrage is currently generating about 0.07 per unit of risk. If you would invest  621.00  in Highland Small Cap Equity on September 5, 2024 and sell it today you would earn a total of  66.00  from holding Highland Small Cap Equity or generate 10.63% return on investment over 90 days.

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

Highland Small Cap Equity  vs.  Highland Merger Arbitrage

Highland Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Highland Small Cap Equity are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Highland Small-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Highland Merger Arbitrage

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Highland Merger Arbitrage are ranked lower than 5 (%) 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.

Pair Trading with Highland Small-cap and Highland Merger

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

The idea behind Highland Small Cap Equity and Highland Merger Arbitrage 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.