Correlation Between Rational Strategic and Absolute Convertible

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

By analyzing existing cross correlation between Rational Strategic Allocation and Absolute Convertible Arbitrage, you can compare the effects of market volatilities on Rational Strategic and Absolute Convertible 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 Rational Strategic with a short position of Absolute Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Strategic and Absolute Convertible.

Diversification Opportunities for Rational Strategic and Absolute Convertible

-0.67

Correlation Coefficient

Rational Strategic  Absolute Convertible

Excellent diversification

The 3 months correlation between Rational and Absolute is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Rational Strategic Allocation and Absolute Convertible Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Convertible and Rational Strategic 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 Rational Strategic Allocation are associated (or correlated) with Absolute Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Convertible has no effect on the direction of Rational Strategic i.e., Rational Strategic and Absolute Convertible go up and down completely randomly.

Pair Corralation between Rational Strategic and Absolute Convertible

Assuming the 90 days horizon Rational Strategic Allocation is expected to under-perform the Absolute Convertible. In addition to that, Rational Strategic is 43.72 times more volatile than Absolute Convertible Arbitrage. It trades about -0.09 of its total potential returns per unit of risk. Absolute Convertible Arbitrage is currently generating about 0.38 per unit of volatility. If you would invest  1,127  in Absolute Convertible Arbitrage on February 3, 2025 and sell it today you would earn a total of  21.00  from holding Absolute Convertible Arbitrage or generate 1.86% return on investment over 90 days.

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

Rational Strategic Allocation  vs.  Absolute Convertible Arbitrage

Rational Strategic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Strategic Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in June 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Absolute Convertible

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Convertible Arbitrage are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Absolute Convertible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Strategic and Absolute Convertible

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

The idea behind Rational Strategic Allocation and Absolute Convertible 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.