Correlation Between Versatile Bond and Pax High
Can any of the company-specific risk be diversified away by investing in both Versatile Bond and Pax High 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 Versatile Bond and Pax High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Versatile Bond Portfolio and Pax High Yield, you can compare the effects of market volatilities on Versatile Bond and Pax High 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 Versatile Bond with a short position of Pax High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Versatile Bond and Pax High.
Diversification Opportunities for Versatile Bond and Pax High
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between VERSATILE and Pax is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio and Pax High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax High Yield and Versatile 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 Versatile Bond Portfolio are associated (or correlated) with Pax High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax High Yield has no effect on the direction of Versatile Bond i.e., Versatile Bond and Pax High go up and down completely randomly.
Pair Corralation between Versatile Bond and Pax High
Assuming the 90 days horizon Versatile Bond is expected to generate 1.25 times less return on investment than Pax High. But when comparing it to its historical volatility, Versatile Bond Portfolio is 1.42 times less risky than Pax High. It trades about 0.24 of its potential returns per unit of risk. Pax High Yield is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 584.00 in Pax High Yield on September 3, 2024 and sell it today you would earn a total of 27.00 from holding Pax High Yield or generate 4.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Versatile Bond Portfolio vs. Pax High Yield
Performance |
| Timeline |
| Versatile Bond Portfolio |
| Pax High Yield |
Versatile Bond and Pax High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Versatile Bond and Pax High
The main advantage of trading using opposite Versatile Bond and Pax High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Versatile Bond position performs unexpectedly, Pax High 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 Pax High will offset losses from the drop in Pax High's long position.| Versatile Bond vs. Short Term Treasury Portfolio | Versatile Bond vs. Aggressive Growth Portfolio | Versatile Bond vs. Permanent Portfolio Class | Versatile Bond vs. Thompson Bond Fund |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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