Correlation Between Government Bond and High Yield
Can any of the company-specific risk be diversified away by investing in both Government 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 Government 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 Government Bond Fund and High Yield Fund Investor, you can compare the effects of market volatilities on Government 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 Government Bond with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Bond and High Yield.
Diversification Opportunities for Government Bond and High Yield
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Government and High is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Government Bond Fund and High Yield Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund and Government 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 Government 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 Government Bond i.e., Government Bond and High Yield go up and down completely randomly.
Pair Corralation between Government Bond and High Yield
Assuming the 90 days horizon Government Bond Fund is expected to under-perform the High Yield. In addition to that, Government Bond is 2.1 times more volatile than High Yield Fund Investor. It trades about -0.12 of its total potential returns per unit of risk. High Yield Fund Investor is currently generating about 0.19 per unit of volatility. If you would invest 508.00 in High Yield Fund Investor on August 24, 2024 and sell it today you would earn a total of 3.00 from holding High Yield Fund Investor or generate 0.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Bond Fund vs. High Yield Fund Investor
Performance |
| Timeline |
| Government Bond |
| High Yield Fund |
Government Bond and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Bond and High Yield
The main advantage of trading using opposite Government Bond and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government 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.| Government Bond vs. Inflation Adjusted Bond Fund | Government Bond vs. Ginnie Mae Fund | Government Bond vs. Short Term Government Fund | Government Bond vs. Diversified Bond Fund |
| 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 |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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