Correlation Between High Yield and Unconstrained Bond
Can any of the company-specific risk be diversified away by investing in both High Yield and Unconstrained 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 High Yield and Unconstrained Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between High Yield Bond and Unconstrained Bond Series, you can compare the effects of market volatilities on High Yield and Unconstrained 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 High Yield with a short position of Unconstrained Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and Unconstrained Bond.
Diversification Opportunities for High Yield and Unconstrained Bond
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between High and Unconstrained is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Bond and Unconstrained Bond Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unconstrained Bond Series 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 Bond are associated (or correlated) with Unconstrained Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unconstrained Bond Series has no effect on the direction of High Yield i.e., High Yield and Unconstrained Bond go up and down completely randomly.
Pair Corralation between High Yield and Unconstrained Bond
Assuming the 90 days horizon High Yield Bond is expected to generate 1.45 times more return on investment than Unconstrained Bond. However, High Yield is 1.45 times more volatile than Unconstrained Bond Series. It trades about 0.26 of its potential returns per unit of risk. Unconstrained Bond Series is currently generating about 0.14 per unit of risk. If you would invest 979.00 in High Yield Bond on November 3, 2024 and sell it today you would earn a total of 11.00 from holding High Yield Bond or generate 1.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Yield Bond vs. Unconstrained Bond Series
Performance |
| Timeline |
| High Yield Bond |
| Unconstrained Bond Series |
High Yield and Unconstrained Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Yield and Unconstrained Bond
The main advantage of trading using opposite High Yield and Unconstrained Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield position performs unexpectedly, Unconstrained 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 Unconstrained Bond will offset losses from the drop in Unconstrained Bond's long position.| High Yield vs. Calvert Developed Market | High Yield vs. Siit Emerging Markets | High Yield vs. Eagle Mlp Strategy | High Yield vs. Kinetics Market Opportunities |
| Unconstrained Bond vs. Franklin Adjustable Government | Unconstrained Bond vs. Us Government Securities | Unconstrained Bond vs. Payden Government Fund | Unconstrained Bond vs. Inverse Government Long |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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