Correlation Between IQ Merger and IndexIQ

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

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

Diversification Opportunities for IQ Merger and IndexIQ

-0.13

Correlation Coefficient

IQ Merger  IndexIQ

Good diversification

The 3 months correlation between MNA and IndexIQ is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding IQ Merger Arbitrage and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ and IQ 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 IQ Merger Arbitrage are associated (or correlated) with IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of IQ Merger i.e., IQ Merger and IndexIQ go up and down completely randomly.

Pair Corralation between IQ Merger and IndexIQ

Considering the 90-day investment horizon IQ Merger is expected to generate 4.18 times less return on investment than IndexIQ. But when comparing it to its historical volatility, IQ Merger Arbitrage is 1.3 times less risky than IndexIQ. It trades about 0.03 of its potential returns per unit of risk. IndexIQ is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,430  in IndexIQ on September 19, 2024 and sell it today you would earn a total of  146.00  from holding IndexIQ or generate 6.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.69%
Values	Daily Returns

IQ Merger Arbitrage  vs.  IndexIQ

IQ Merger Arbitrage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IQ Merger Arbitrage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IQ Merger is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

IndexIQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IndexIQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IndexIQ is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IQ Merger and IndexIQ

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

The idea behind IQ Merger Arbitrage and IndexIQ 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.