Standard & Poor’s introduced three indexes to track common arbitrage strategies: the S&P 500 Volatility Arbitrage index; the S&P Currency Arbitrage index; and the S&P Long Only Merger Arbitrage index, the company said in a statement.
The volatility index models a strategy that takes advantage of the difference between implied and realized volatility. The currency one models a carry-trade strategy based on currencies in the 10 major countries, including the United States. “It takes a long position in currencies that have a higher interest rate than the U.S. dollar and a short position in currencies that have a lower interest rate than the U.S. dollar,” the statement said. “The weight of each currency is directly proportional to its interest rate spread and inversely proportional to its volatility.”
The merger index models “a risk arbitrage strategy that exploits commonly observed price changes associated with mergers,” the statement said. The index is composed of long positions in a maximum of 40 large, liquid stocks that are active targets in pending merger deals.