Correlation Between High Yield and US Gold

Can any of the company-specific risk be diversified away by investing in both High Yield and US Gold 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 US Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between High Yield Municipal Fund and US Gold Corp, you can compare the effects of market volatilities on High Yield and US Gold 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 US Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and US Gold.

Diversification Opportunities for High Yield and US Gold

0.18

Correlation Coefficient

High Yield  US Gold

Average diversification

The 3 months correlation between High and USAU is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and US Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Gold Corp 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 Municipal Fund are associated (or correlated) with US Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Gold Corp has no effect on the direction of High Yield i.e., High Yield and US Gold go up and down completely randomly.

Pair Corralation between High Yield and US Gold

Assuming the 90 days horizon High Yield is expected to generate 38.95 times less return on investment than US Gold. But when comparing it to its historical volatility, High Yield Municipal Fund is 13.38 times less risky than US Gold. It trades about 0.04 of its potential returns per unit of risk. US Gold Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  584.00  in US Gold Corp on September 13, 2024 and sell it today you would earn a total of  148.00  from holding US Gold Corp or generate 25.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

High Yield Municipal Fund  vs.  US Gold Corp

High Yield Municipal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

US Gold Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Gold Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, US Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with High Yield and US Gold

The main advantage of trading using opposite High Yield and US Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield position performs unexpectedly, US Gold 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 US Gold will offset losses from the drop in US Gold's long position.

The idea behind High Yield Municipal Fund and US Gold Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.