Correlation Between Core Plus and High Yield

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

By analyzing existing cross correlation between Core Plus Fund and High Yield Fund Investor, you can compare the effects of market volatilities on Core Plus 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 Core Plus with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Plus and High Yield.

Diversification Opportunities for Core Plus and High Yield

0.44

Correlation Coefficient

Core Plus  High Yield

Very weak diversification

The 3 months correlation between Core and High is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Core Plus Fund and High Yield Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund and Core Plus 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 Core Plus 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 Core Plus i.e., Core Plus and High Yield go up and down completely randomly.

Pair Corralation between Core Plus and High Yield

Assuming the 90 days horizon Core Plus Fund is expected to under-perform the High Yield. In addition to that, Core Plus is 1.57 times more volatile than High Yield Fund Investor. It trades about -0.05 of its total potential returns per unit of risk. High Yield Fund Investor is currently generating about 0.06 per unit of volatility. If you would invest  505.00  in High Yield Fund Investor on October 20, 2024 and sell it today you would earn a total of  4.00  from holding High Yield Fund Investor or generate 0.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Core Plus Fund  vs.  High Yield Fund Investor

Core Plus Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Core Plus Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Core Plus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

High Yield Fund

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Fund Investor are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Core Plus and High Yield

The main advantage of trading using opposite Core Plus and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core Plus 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.

The idea behind Core Plus Fund and High Yield Fund Investor 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.