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Tuesday, July 08, 2025

Arbitrage Opportunity in Corewave (CRWV) and Core Scientific (CORZ)

By Century Financial in 'Investment Insights'

Arbitrage Opportunity in Corewave (CRWV) and...
Platinum Primed for Take-off as it Breaks Out of 17-Year Consolidation

The Trade:

Buy 1000 shares of Core Scientific (CORZ) sell 123.5 shares of CoreWeave (CRWV)

Rationale:

CoreWeave (CRWV) agreeing to acquire Core Scientific (CORZ) in an all-stock deal where CORZ shareholders receive 0.1235 CRWV shares per CORZ share, representing a deal value of roughly $19.63 per CORZ share—there is a potential arbitrage opportunity if the current market prices deviate from these implied values.

Deal Ratio: 1 CORZ share = 0.1235 CRWV shares.
Implied Deal Value: $19.63 per CORZ share (based on the value of CRWV shares at the time of the announcement).
Current CORZ Price: $14.80 (as of July 7, 2025).
Implied CRWV Price: To reach $19.63 per CORZ share, the share has to gain 32%.

Arbitrage Setup:

Buy $CORZ shares at $14.80
Sell short 0.1235 $CRWV shares for every $CORZ share bought.
For example, for every 1000 $CORZ shares bought, 123.5 $CRWV shares should be sold.

Note: Short selling involves significant risks, including the potential for unlimited losses if the stock price rises; making the strategy suitable for high-risk appetite investors alone

Risks and Assumptions related to Back-tested trading strategies
The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
The back-tested strategy might be at risk of data dredging, which is the behavior of testing multiple hypotheses at one time, resulting in picking the data that best supports your main hypothesis.
Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
Unforeseen events can lead to variation in performance from the tested trading strategy.
The tested result has been computed with price feeds available from Bloomberg.
The testing environment has not considered transaction or any other costs.
Trading indicators used for the purpose of testing has been provided by Bloomberg.
The strategy might suffer from data mining fallacy, selection bias and backfill bias.
A trading strategy that performs well on multiple datasets from one market (e.g., forex) might not perform as well in another market (e.g., stocks).
The strategy may not depict accuracy in terms of spread changes due to the spread-widening events.
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