Correlation Between Blue Chip and Absolute Convertible

Can any of the company-specific risk be diversified away by investing in both Blue Chip and Absolute Convertible 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 Blue Chip and Absolute Convertible into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Blue Chip Growth and Absolute Convertible Arbitrage, you can compare the effects of market volatilities on Blue Chip and Absolute Convertible 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 Blue Chip with a short position of Absolute Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Absolute Convertible.

Diversification Opportunities for Blue Chip and Absolute Convertible

0.52

Correlation Coefficient

Blue Chip  Absolute Convertible

Very weak diversification

The 3 months correlation between Blue and Absolute is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Growth and Absolute Convertible Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Convertible and Blue Chip 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 Blue Chip Growth are associated (or correlated) with Absolute Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Convertible has no effect on the direction of Blue Chip i.e., Blue Chip and Absolute Convertible go up and down completely randomly.

Pair Corralation between Blue Chip and Absolute Convertible

Assuming the 90 days horizon Blue Chip Growth is expected to generate 13.31 times more return on investment than Absolute Convertible. However, Blue Chip is 13.31 times more volatile than Absolute Convertible Arbitrage. It trades about 0.1 of its potential returns per unit of risk. Absolute Convertible Arbitrage is currently generating about 0.24 per unit of risk. If you would invest  3,546  in Blue Chip Growth on October 23, 2024 and sell it today you would earn a total of  2,340  from holding Blue Chip Growth or generate 65.99% return on investment over 90 days.

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

Blue Chip Growth  vs.  Absolute Convertible Arbitrage

Blue Chip Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Absolute Convertible

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Blue Chip and Absolute Convertible

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

The idea behind Blue Chip Growth and Absolute Convertible 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.