Correlation Between High Yield and Short Duration
Can any of the company-specific risk be diversified away by investing in both High Yield and Short Duration 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 High Yield and Short Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between High Yield Fund Investor and Short Duration Inflation, you can compare the effects of market volatilities on High Yield and Short Duration 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 High Yield with a short position of Short Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and Short Duration.
Diversification Opportunities for High Yield and Short Duration
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between High and Short is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Fund Investor and Short Duration Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Inflation and High Yield 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 High Yield Fund Investor are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Inflation has no effect on the direction of High Yield i.e., High Yield and Short Duration go up and down completely randomly.
Pair Corralation between High Yield and Short Duration
Assuming the 90 days horizon High Yield Fund Investor is expected to generate 1.04 times more return on investment than Short Duration. However, High Yield is 1.04 times more volatile than Short Duration Inflation. It trades about 0.14 of its potential returns per unit of risk. Short Duration Inflation is currently generating about 0.14 per unit of risk. If you would invest 509.00 in High Yield Fund Investor on August 28, 2024 and sell it today you would earn a total of 2.00 from holding High Yield Fund Investor or generate 0.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Yield Fund Investor vs. Short Duration Inflation
Performance |
| Timeline |
| High Yield Fund |
| Short Duration Inflation |
High Yield and Short Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Yield and Short Duration
The main advantage of trading using opposite High Yield and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield position performs unexpectedly, Short Duration 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 Short Duration will offset losses from the drop in Short Duration's long position.| High Yield vs. High Yield Municipal Fund | High Yield vs. Diversified Bond Fund | High Yield vs. Ginnie Mae Fund | High Yield vs. Utilities Fund Investor |
| Short Duration vs. Inflation Adjusted Bond Fund | Short Duration vs. Diversified Bond Fund | Short Duration vs. Short Duration Fund | Short Duration vs. Core Plus Fund |
Check out your portfolio center.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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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