DIVA SYNERGY
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Portfolio Allocation

 

  • The structure of the portfolio and the allocation between the two strategies Pre-Event Merger Arbitrage and Announced Merger Arbitrage depends mainly on the level of volatility in the market. Higher market volatility results in higher risks which gives larger spreads and therefore makes the Announced Merger Arbitrage strategy more profitable than the Pre-Event Merger Arbitrage .
     
  • As illustrated below there is a clear correlation between the structure of our portfolio and the market volatility. At the end of 2008 when volatility – in terms of the VIX index – was above 40, more than 90% of the portfolio (managed by the same team, applying the same strategy) was invested in the Merger Arbitrage strategy.