Correlation Between Cambria Tail and Quadratic Interest

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

By analyzing existing cross correlation between Cambria Tail Risk and Quadratic Interest Rate, you can compare the effects of market volatilities on Cambria Tail and Quadratic Interest 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 Cambria Tail with a short position of Quadratic Interest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cambria Tail and Quadratic Interest.

Diversification Opportunities for Cambria Tail and Quadratic Interest

0.88

Correlation Coefficient

Cambria Tail  Quadratic Interest

Very poor diversification

The 3 months correlation between Cambria and Quadratic is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Cambria Tail Risk and Quadratic Interest Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quadratic Interest Rate and Cambria Tail 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 Cambria Tail Risk are associated (or correlated) with Quadratic Interest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quadratic Interest Rate has no effect on the direction of Cambria Tail i.e., Cambria Tail and Quadratic Interest go up and down completely randomly.

Pair Corralation between Cambria Tail and Quadratic Interest

Given the investment horizon of 90 days Cambria Tail is expected to generate 1.1 times less return on investment than Quadratic Interest. In addition to that, Cambria Tail is 1.9 times more volatile than Quadratic Interest Rate. It trades about 0.1 of its total potential returns per unit of risk. Quadratic Interest Rate is currently generating about 0.2 per unit of volatility. If you would invest  1,756  in Quadratic Interest Rate on December 29, 2024 and sell it today you would earn a total of  114.00  from holding Quadratic Interest Rate or generate 6.49% return on investment over 90 days.

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

Cambria Tail Risk  vs.  Quadratic Interest Rate

Cambria Tail Risk

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cambria Tail Risk are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, Cambria Tail is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Quadratic Interest Rate

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Quadratic Interest Rate are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Quadratic Interest may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cambria Tail and Quadratic Interest

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

The idea behind Cambria Tail Risk and Quadratic Interest Rate 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.