Correlation Between Diversified Bond and High-yield Fund

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

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

Diversification Opportunities for Diversified Bond and High-yield Fund

0.67

Correlation Coefficient

Diversified Bond  High-yield Fund

Poor diversification

The 3 months correlation between Diversified and High-yield is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Bond 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 Diversified Bond 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 Diversified Bond Fund are associated (or correlated) with High-yield Fund. 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 Diversified Bond i.e., Diversified Bond and High-yield Fund go up and down completely randomly.

Pair Corralation between Diversified Bond and High-yield Fund

Assuming the 90 days horizon Diversified Bond Fund is expected to under-perform the High-yield Fund. In addition to that, Diversified Bond is 1.6 times more volatile than High Yield Fund Investor. It trades about -0.43 of its total potential returns per unit of risk. High Yield Fund Investor is currently generating about -0.37 per unit of volatility. If you would invest  514.00  in High Yield Fund Investor on October 5, 2024 and sell it today you would lose (6.00) from holding High Yield Fund Investor or give up 1.17% of portfolio value over 90 days.

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

Diversified Bond Fund  vs.  High Yield Fund Investor

Diversified Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Diversified Bond 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

0 of 100

Very Weak

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

Pair Trading with Diversified Bond and High-yield Fund

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

The idea behind Diversified Bond 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.