Correlation Between Unconstrained Bond and High Yield

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

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

Diversification Opportunities for Unconstrained Bond and High Yield

0.16

Correlation Coefficient

Unconstrained Bond  High Yield

Average diversification

The 3 months correlation between Unconstrained and High is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Unconstrained Bond Series and High Yield Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Bond and Unconstrained 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 Unconstrained Bond Series 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 Bond has no effect on the direction of Unconstrained Bond i.e., Unconstrained Bond and High Yield go up and down completely randomly.

Pair Corralation between Unconstrained Bond and High Yield

Assuming the 90 days horizon Unconstrained Bond Series is expected to under-perform the High Yield. But the mutual fund apears to be less risky and, when comparing its historical volatility, Unconstrained Bond Series is 1.09 times less risky than High Yield. The mutual fund trades about -0.03 of its potential returns per unit of risk. The High Yield Bond is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  985.00  in High Yield Bond on September 12, 2024 and sell it today you would earn a total of  16.00  from holding High Yield Bond or generate 1.62% return on investment over 90 days.

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

Unconstrained Bond Series  vs.  High Yield Bond

Unconstrained Bond Series

Risk-Adjusted Performance

0 of 100

Very Weak

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

High Yield Bond

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Bond are ranked lower than 13 (%) 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.

Pair Trading with Unconstrained Bond and High Yield

The main advantage of trading using opposite Unconstrained Bond and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unconstrained Bond 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 Unconstrained Bond Series and High Yield Bond 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.