Correlation Between High Income and Equity Income
Can any of the company-specific risk be diversified away by investing in both High Income 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 Income 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 Income Fund and Equity Income Fund, you can compare the effects of market volatilities on High Income 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 Income with a short position of Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Income and Equity Income.
Diversification Opportunities for High Income and Equity Income
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between High and Equity is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding High Income 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 Income 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 Income 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 Income i.e., High Income and Equity Income go up and down completely randomly.
Pair Corralation between High Income and Equity Income
Assuming the 90 days horizon High Income is expected to generate 2.05 times less return on investment than Equity Income. But when comparing it to its historical volatility, High Income Fund is 2.06 times less risky than Equity Income. It trades about 0.17 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 874.00 in Equity Income Fund on December 1, 2024 and sell it today you would earn a total of 13.00 from holding Equity Income Fund or generate 1.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
High Income Fund vs. Equity Income Fund
Performance |
| Timeline |
| High Income Fund |
| Equity Income |
High Income and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Income and Equity Income
The main advantage of trading using opposite High Income and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Income 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 Income vs. Pnc Balanced Allocation | High Income vs. Hartford Moderate Allocation | High Income vs. Gmo Asset Allocation | High Income vs. Growth Allocation Fund |
| Equity Income vs. Mid Cap Value | Equity Income vs. American Balanced Fund | Equity Income vs. Small Cap Value | Equity Income vs. American Funds 2020 |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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