Correlation Between Virtus Convertible and Eafe Fund

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

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

Diversification Opportunities for Virtus Convertible and Eafe Fund

0.38

Correlation Coefficient

Virtus Convertible  Eafe Fund

Weak diversification

The 3 months correlation between Virtus and Eafe is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Virtus Convertible and The Eafe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Fund and Virtus Convertible 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 Virtus Convertible are associated (or correlated) with Eafe Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Fund has no effect on the direction of Virtus Convertible i.e., Virtus Convertible and Eafe Fund go up and down completely randomly.

Pair Corralation between Virtus Convertible and Eafe Fund

Assuming the 90 days horizon Virtus Convertible is expected to under-perform the Eafe Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Virtus Convertible is 2.29 times less risky than Eafe Fund. The mutual fund trades about -0.1 of its potential returns per unit of risk. The The Eafe Fund is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,354  in The Eafe Fund on December 20, 2024 and sell it today you would lose (31.00) from holding The Eafe Fund or give up 2.29% of portfolio value over 90 days.

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

Virtus Convertible  vs.  The Eafe Fund

Virtus Convertible

Risk-Adjusted Performance

Very Weak

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

Eafe Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Eafe Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Eafe 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 Virtus Convertible and Eafe Fund

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

The idea behind Virtus Convertible and The Eafe 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.