Correlation Between Diversified Bond and High Yield
Can any of the company-specific risk be diversified away by investing in both Diversified Bond and High Yield 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 Diversified Bond and High Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diversified Bond Fund and High Yield Fund Y, you can compare the effects of market volatilities on Diversified Bond and High Yield 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 Diversified Bond with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Bond and High Yield.
Diversification Opportunities for Diversified Bond and High Yield
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Diversified and High is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Bond Fund and High Yield Fund Y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund and Diversified Bond 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 Diversified Bond Fund are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Diversified Bond i.e., Diversified Bond and High Yield go up and down completely randomly.
Pair Corralation between Diversified Bond and High Yield
Assuming the 90 days horizon Diversified Bond Fund is expected to generate 1.87 times more return on investment than High Yield. However, Diversified Bond is 1.87 times more volatile than High Yield Fund Y. It trades about 0.11 of its potential returns per unit of risk. High Yield Fund Y is currently generating about 0.06 per unit of risk. If you would invest 917.00 in Diversified Bond Fund on September 12, 2024 and sell it today you would earn a total of 6.00 from holding Diversified Bond Fund or generate 0.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diversified Bond Fund vs. High Yield Fund Y
Performance |
| Timeline |
| Diversified Bond |
| High Yield Fund |
Diversified Bond and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diversified Bond and High Yield
The main advantage of trading using opposite Diversified Bond and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Bond position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield's long position.| Diversified Bond vs. SCOR PK | Diversified Bond vs. Morningstar Unconstrained Allocation | Diversified Bond vs. Via Renewables | Diversified Bond vs. Bondbloxx ETF Trust |
| High Yield vs. High Income Fund | High Yield vs. High Yield Portfolio | High Yield vs. High Yield Portfolio | High Yield vs. High Income 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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