Correlation Between High Yield and Equity Income
Can any of the company-specific risk be diversified away by investing in both High Yield and Equity Income 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 Equity Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between High Yield Fund and Equity Income Fund, you can compare the effects of market volatilities on High Yield and Equity Income 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 Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and Equity Income.
Diversification Opportunities for High Yield and Equity Income
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between High and Equity is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Fund and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of High Yield i.e., High Yield and Equity Income go up and down completely randomly.
Pair Corralation between High Yield and Equity Income
Assuming the 90 days horizon High Yield is expected to generate 10.01 times less return on investment than Equity Income. But when comparing it to its historical volatility, High Yield Fund is 4.91 times less risky than Equity Income. It trades about 0.18 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 4,300 in Equity Income Fund on September 2, 2024 and sell it today you would earn a total of 220.00 from holding Equity Income Fund or generate 5.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 85.71% |
| Values | Daily Returns |
High Yield Fund vs. Equity Income Fund
Performance |
| Timeline |
| High Yield Fund |
| Equity Income |
High Yield and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Yield and Equity Income
The main advantage of trading using opposite High Yield and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield position performs unexpectedly, Equity Income 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 Equity Income will offset losses from the drop in Equity Income's long position.| High Yield vs. Icon Natural Resources | High Yield vs. Dreyfus Natural Resources | High Yield vs. Alpsalerian Energy Infrastructure | High Yield vs. Jennison Natural Resources |
| Equity Income vs. Principal Capital Appreciation | Equity Income vs. Diversified International Fund | Equity Income vs. Brown Advisory Growth | Equity Income vs. Midcap Fund Class |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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