Correlation Between California High-yield and Diversified Bond
Can any of the company-specific risk be diversified away by investing in both California High-yield and Diversified Bond 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 California High-yield and Diversified Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California High Yield Municipal and Diversified Bond Fund, you can compare the effects of market volatilities on California High-yield and Diversified Bond 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 California High-yield with a short position of Diversified Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of California High-yield and Diversified Bond.
Diversification Opportunities for California High-yield and Diversified Bond
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between California and Diversified is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding California High Yield Municipa and Diversified Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Bond and California 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 California High Yield Municipal are associated (or correlated) with Diversified Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Bond has no effect on the direction of California High-yield i.e., California High-yield and Diversified Bond go up and down completely randomly.
Pair Corralation between California High-yield and Diversified Bond
Assuming the 90 days horizon California High Yield Municipal is expected to generate 1.13 times more return on investment than Diversified Bond. However, California High-yield is 1.13 times more volatile than Diversified Bond Fund. It trades about -0.4 of its potential returns per unit of risk. Diversified Bond Fund is currently generating about -0.53 per unit of risk. If you would invest 998.00 in California High Yield Municipal on October 9, 2024 and sell it today you would lose (20.00) from holding California High Yield Municipal or give up 2.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
California High Yield Municipa vs. Diversified Bond Fund
Performance |
| Timeline |
| California High Yield |
| Diversified Bond |
California High-yield and Diversified Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California High-yield and Diversified Bond
The main advantage of trading using opposite California High-yield and Diversified Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California High-yield position performs unexpectedly, Diversified Bond 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 Diversified Bond will offset losses from the drop in Diversified Bond's long position.The idea behind California High Yield Municipal and Diversified Bond Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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