Correlation Between High Yield and Real Return
Can any of the company-specific risk be diversified away by investing in both High Yield and Real Return 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 Real Return 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 Real Return Fund, you can compare the effects of market volatilities on High Yield and Real Return 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 Real Return. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and Real Return.
Diversification Opportunities for High Yield and Real Return
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between High and Real is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Fund and Real Return Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Return Fund 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 Real Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Return Fund has no effect on the direction of High Yield i.e., High Yield and Real Return go up and down completely randomly.
Pair Corralation between High Yield and Real Return
Assuming the 90 days horizon High Yield Fund is expected to generate 0.7 times more return on investment than Real Return. However, High Yield Fund is 1.43 times less risky than Real Return. It trades about 0.2 of its potential returns per unit of risk. Real Return Fund is currently generating about 0.08 per unit of risk. If you would invest 771.00 in High Yield Fund on September 1, 2024 and sell it today you would earn a total of 37.00 from holding High Yield Fund or generate 4.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
High Yield Fund vs. Real Return Fund
Performance |
| Timeline |
| High Yield Fund |
| Real Return Fund |
High Yield and Real Return Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Yield and Real Return
The main advantage of trading using opposite High Yield and Real Return positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield position performs unexpectedly, Real Return 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 Real Return will offset losses from the drop in Real Return's long position.| High Yield vs. Emerging Markets Bond | High Yield vs. Pimco Foreign Bond | High Yield vs. Real Return Fund | High Yield vs. Low Duration Fund |
| Real Return vs. Ab Global Risk | Real Return vs. Franklin High Income | Real Return vs. Alliancebernstein Global High | Real Return vs. Federated Institutional High |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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