Correlation Between Virginia Bond and Arbitrage Fund

Can any of the company-specific risk be diversified away by investing in both Virginia 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 Virginia 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 Virginia Bond Fund and The Arbitrage Fund, you can compare the effects of market volatilities on Virginia 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 Virginia Bond with a short position of Arbitrage Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Virginia Bond and Arbitrage Fund.

Diversification Opportunities for Virginia Bond and Arbitrage Fund

-0.33

Correlation Coefficient

Virginia Bond  Arbitrage Fund

Very good diversification

The 3 months correlation between Virginia and Arbitrage is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Virginia 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 Virginia 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 Virginia 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 Virginia Bond i.e., Virginia Bond and Arbitrage Fund go up and down completely randomly.

Pair Corralation between Virginia Bond and Arbitrage Fund

Assuming the 90 days horizon Virginia Bond Fund is expected to generate 1.47 times more return on investment than Arbitrage Fund. However, Virginia Bond is 1.47 times more volatile than The Arbitrage Fund. It trades about 0.05 of its potential returns per unit of risk. The Arbitrage Fund is currently generating about 0.04 per unit of risk. If you would invest  1,058  in Virginia Bond Fund on September 12, 2024 and sell it today you would earn a total of  10.00  from holding Virginia Bond Fund or generate 0.95% return on investment over 90 days.

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

Virginia Bond Fund  vs.  The Arbitrage Fund

Virginia Bond

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Virginia Bond Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Virginia 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

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Fund are ranked lower than 3 (%) 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 Virginia Bond and Arbitrage Fund

The main advantage of trading using opposite Virginia Bond and Arbitrage Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virginia 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 Virginia 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.