Correlation Between Short Term and High Yield
Can any of the company-specific risk be diversified away by investing in both Short Term 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 Short Term and High Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Government Fund and High Yield Fund, you can compare the effects of market volatilities on Short Term 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 Short Term with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Term and High Yield.
Diversification Opportunities for Short Term and High Yield
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Short and High is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government 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 Short Term 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 Short Term Government 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 Short Term i.e., Short Term and High Yield go up and down completely randomly.
Pair Corralation between Short Term and High Yield
Assuming the 90 days horizon Short Term is expected to generate 10.35 times less return on investment than High Yield. But when comparing it to its historical volatility, Short Term Government Fund is 1.89 times less risky than High Yield. It trades about 0.06 of its potential returns per unit of risk. High Yield Fund is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 680.00 in High Yield Fund on September 14, 2024 and sell it today you would earn a total of 8.00 from holding High Yield Fund or generate 1.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. High Yield Fund
Performance |
| Timeline |
| Short Term Government |
| High Yield Fund |
Short Term and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Term and High Yield
The main advantage of trading using opposite Short Term and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Term 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.| Short Term vs. Delaware Limited Term Diversified | Short Term vs. Fidelity Advisor Diversified | Short Term vs. Wealthbuilder Conservative Allocation | Short Term vs. Tax Free Conservative Income |
| High Yield vs. Hsbc Government Money | High Yield vs. Short Term Government Fund | High Yield vs. Dws Government Money | High Yield vs. Us Government Securities |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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