Correlation Between High Income and Sustainable Equity
Can any of the company-specific risk be diversified away by investing in both High Income and Sustainable Equity 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 Sustainable Equity 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 Sustainable Equity Fund, you can compare the effects of market volatilities on High Income and Sustainable Equity 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 Sustainable Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Income and Sustainable Equity.
Diversification Opportunities for High Income and Sustainable Equity
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between High and Sustainable is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding High Income Fund and Sustainable Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sustainable Equity 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 Sustainable Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sustainable Equity has no effect on the direction of High Income i.e., High Income and Sustainable Equity go up and down completely randomly.
Pair Corralation between High Income and Sustainable Equity
Assuming the 90 days horizon High Income is expected to generate 2.13 times less return on investment than Sustainable Equity. But when comparing it to its historical volatility, High Income Fund is 2.69 times less risky than Sustainable Equity. It trades about 0.13 of its potential returns per unit of risk. Sustainable Equity Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,931 in Sustainable Equity Fund on September 1, 2024 and sell it today you would earn a total of 1,923 from holding Sustainable Equity Fund or generate 48.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Income Fund vs. Sustainable Equity Fund
Performance |
| Timeline |
| High Income Fund |
| Sustainable Equity |
High Income and Sustainable Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Income and Sustainable Equity
The main advantage of trading using opposite High Income and Sustainable Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Income position performs unexpectedly, Sustainable Equity 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 Sustainable Equity will offset losses from the drop in Sustainable Equity's long position.| High Income vs. High Yield Municipal Fund | High Income vs. Diversified Bond Fund | High Income vs. Utilities Fund Investor | High Income vs. Emerging Markets Fund |
| Sustainable Equity vs. Tax Managed Mid Small | Sustainable Equity vs. Qs Small Capitalization | Sustainable Equity vs. Baird Smallmid Cap | Sustainable Equity vs. Us Small Cap |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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