Correlation Between High Yield and Growth Opportunities
Can any of the company-specific risk be diversified away by investing in both High Yield and Growth Opportunities 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 Growth Opportunities 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 Growth Opportunities Fund, you can compare the effects of market volatilities on High Yield and Growth Opportunities 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 Growth Opportunities. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and Growth Opportunities.
Diversification Opportunities for High Yield and Growth Opportunities
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between High and Growth is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Fund and Growth Opportunities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Opportunities 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 Growth Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Opportunities has no effect on the direction of High Yield i.e., High Yield and Growth Opportunities go up and down completely randomly.
Pair Corralation between High Yield and Growth Opportunities
Assuming the 90 days horizon High Yield is expected to generate 5.51 times less return on investment than Growth Opportunities. But when comparing it to its historical volatility, High Yield Fund is 7.22 times less risky than Growth Opportunities. It trades about 0.24 of its potential returns per unit of risk. Growth Opportunities Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 5,414 in Growth Opportunities Fund on August 25, 2024 and sell it today you would earn a total of 239.00 from holding Growth Opportunities Fund or generate 4.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Yield Fund vs. Growth Opportunities Fund
Performance |
| Timeline |
| High Yield Fund |
| Growth Opportunities |
High Yield and Growth Opportunities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Yield and Growth Opportunities
The main advantage of trading using opposite High Yield and Growth Opportunities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield position performs unexpectedly, Growth Opportunities 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 Growth Opportunities will offset losses from the drop in Growth Opportunities' long position.| High Yield vs. Gmo Equity Allocation | High Yield vs. Vanguard Telecommunication Services | High Yield vs. The Hartford Equity | High Yield vs. Ab Select Equity |
| Growth Opportunities vs. HUMANA INC | Growth Opportunities vs. Aquagold International | Growth Opportunities vs. Barloworld Ltd ADR | Growth Opportunities vs. Morningstar Unconstrained Allocation |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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