Correlation Between Sierra Core and Highland Merger

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

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

Diversification Opportunities for Sierra Core and Highland Merger

-0.03

Correlation Coefficient

Sierra Core  Highland Merger

Good diversification

The 3 months correlation between Sierra and Highland is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Sierra E Retirement 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 Sierra Core 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 Sierra E Retirement 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 Sierra Core i.e., Sierra Core and Highland Merger go up and down completely randomly.

Pair Corralation between Sierra Core and Highland Merger

Assuming the 90 days horizon Sierra Core is expected to generate 4.88 times less return on investment than Highland Merger. In addition to that, Sierra Core is 2.21 times more volatile than Highland Merger Arbitrage. It trades about 0.01 of its total potential returns per unit of risk. Highland Merger Arbitrage is currently generating about 0.13 per unit of volatility. If you would invest  1,906  in Highland Merger Arbitrage on December 5, 2024 and sell it today you would earn a total of  48.00  from holding Highland Merger Arbitrage or generate 2.52% return on investment over 90 days.

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

Sierra E Retirement  vs.  Highland Merger Arbitrage

Sierra E Retirement

Risk-Adjusted Performance

Very Weak

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

Highland Merger Arbitrage

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Highland Merger Arbitrage are ranked lower than 27 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic 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 Sierra Core and Highland Merger

The main advantage of trading using opposite Sierra Core and Highland Merger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sierra Core 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 Sierra E Retirement 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.