Correlation Between Moderate Strategy and The Arbitrage

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

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

Diversification Opportunities for Moderate Strategy and The Arbitrage

0.95

Correlation Coefficient

Moderate Strategy  The Arbitrage

Almost no diversification

The 3 months correlation between Moderate and The is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Strategy Fund and The Arbitrage Event Driven in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrage Event and Moderate Strategy 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 Moderate Strategy Fund are associated (or correlated) with The Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrage Event has no effect on the direction of Moderate Strategy i.e., Moderate Strategy and The Arbitrage go up and down completely randomly.

Pair Corralation between Moderate Strategy and The Arbitrage

Assuming the 90 days horizon Moderate Strategy Fund is expected to generate 3.0 times more return on investment than The Arbitrage. However, Moderate Strategy is 3.0 times more volatile than The Arbitrage Event Driven. It trades about 0.21 of its potential returns per unit of risk. The Arbitrage Event Driven is currently generating about 0.47 per unit of risk. If you would invest  959.00  in Moderate Strategy Fund on May 18, 2025 and sell it today you would earn a total of  42.00  from holding Moderate Strategy Fund or generate 4.38% return on investment over 90 days.

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

Moderate Strategy Fund  vs.  The Arbitrage Event Driven

Moderate Strategy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Strategy Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Moderate Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Arbitrage Event

Risk-Adjusted Performance

High

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Event Driven are ranked lower than 37 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, The Arbitrage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderate Strategy and The Arbitrage

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

The idea behind Moderate Strategy Fund and The Arbitrage Event Driven 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.