Correlation Between California Bond and Arbitrage Fund

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

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

Diversification Opportunities for California Bond and Arbitrage Fund

-0.23

Correlation Coefficient

California Bond  Arbitrage Fund

Very good diversification

The 3 months correlation between California and Arbitrage is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and The Arbitrage Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrage Fund and California Bond 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 California Bond Fund are associated (or correlated) with Arbitrage Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrage Fund has no effect on the direction of California Bond i.e., California Bond and Arbitrage Fund go up and down completely randomly.

Pair Corralation between California Bond and Arbitrage Fund

Assuming the 90 days horizon California Bond is expected to generate 18.53 times less return on investment than Arbitrage Fund. In addition to that, California Bond is 2.11 times more volatile than The Arbitrage Fund. It trades about 0.02 of its total potential returns per unit of risk. The Arbitrage Fund is currently generating about 0.76 per unit of volatility. If you would invest  1,280  in The Arbitrage Fund on October 27, 2024 and sell it today you would earn a total of  25.00  from holding The Arbitrage Fund or generate 1.95% return on investment over 90 days.

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

California Bond Fund  vs.  The Arbitrage Fund

California Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Arbitrage Fund

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Arbitrage Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with California Bond and Arbitrage Fund

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

The idea behind California Bond Fund and The Arbitrage Fund 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.