Correlation Between Low Duration and High Yield
Can any of the company-specific risk be diversified away by investing in both Low Duration and High Yield 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 Low Duration and High Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Low Duration Fund and High Yield Fund, you can compare the effects of market volatilities on Low Duration and High Yield 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 Low Duration with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Low Duration and High Yield.
Diversification Opportunities for Low Duration and High Yield
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Low and High is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Low Duration Fund and High Yield Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund and Low Duration 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 Low Duration Fund are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Low Duration i.e., Low Duration and High Yield go up and down completely randomly.
Pair Corralation between Low Duration and High Yield
Assuming the 90 days horizon Low Duration is expected to generate 1.72 times less return on investment than High Yield. But when comparing it to its historical volatility, Low Duration Fund is 1.54 times less risky than High Yield. It trades about 0.18 of its potential returns per unit of risk. High Yield Fund is currently generating about 0.2 of returns per unit of risk over similar time horizon. 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 | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Low Duration Fund vs. High Yield Fund
Performance |
| Timeline |
| Low Duration |
| High Yield Fund |
Low Duration and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Low Duration and High Yield
The main advantage of trading using opposite Low Duration and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Low Duration position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield's long position.| Low Duration vs. Real Return Fund | Low Duration vs. Pimco Foreign Bond | Low Duration vs. Commodityrealreturn Strategy Fund | Low Duration vs. High Yield Fund |
| High Yield vs. Emerging Markets Bond | High Yield vs. Pimco Foreign Bond | High Yield vs. Real Return Fund | High Yield vs. Low Duration 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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