Correlation Between IQ Merger and First Trust

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

Diversification Opportunities for IQ Merger and First Trust

0.8

Correlation Coefficient

IQ Merger  First Trust

Very poor diversification

The 3 months correlation between MNA and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding IQ Merger Arbitrage and First Trust Vivaldi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Vivaldi 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Vivaldi has no effect on the direction of IQ Merger i.e., IQ Merger and First Trust go up and down completely randomly.

Pair Corralation between IQ Merger and First Trust

Considering the 90-day investment horizon IQ Merger Arbitrage is expected to generate 1.28 times more return on investment than First Trust. However, IQ Merger is 1.28 times more volatile than First Trust Vivaldi. It trades about 0.06 of its potential returns per unit of risk. First Trust Vivaldi is currently generating about 0.04 per unit of risk. If you would invest  3,095  in IQ Merger Arbitrage on October 26, 2024 and sell it today you would earn a total of  260.00  from holding IQ Merger Arbitrage or generate 8.4% return on investment over 90 days.

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

IQ Merger Arbitrage  vs.  First Trust Vivaldi

IQ Merger Arbitrage

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IQ Merger Arbitrage are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. 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.

First Trust Vivaldi

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Vivaldi are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IQ Merger and First Trust

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

The idea behind IQ Merger Arbitrage and First Trust Vivaldi 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.