Correlation Between Payden Core and Payden Corporate

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

By analyzing existing cross correlation between Payden E Bond and Payden Porate Bond, you can compare the effects of market volatilities on Payden Core and Payden Corporate 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 Payden Core with a short position of Payden Corporate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Payden Core and Payden Corporate.

Diversification Opportunities for Payden Core and Payden Corporate

0.98

Correlation Coefficient

Payden Core  Payden Corporate

Almost no diversification

The 3 months correlation between Payden and Payden is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Payden E Bond and Payden Porate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Porate Bond and Payden Core 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 Payden E Bond are associated (or correlated) with Payden Corporate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Porate Bond has no effect on the direction of Payden Core i.e., Payden Core and Payden Corporate go up and down completely randomly.

Pair Corralation between Payden Core and Payden Corporate

Assuming the 90 days horizon Payden Core is expected to generate 1.67 times less return on investment than Payden Corporate. But when comparing it to its historical volatility, Payden E Bond is 1.12 times less risky than Payden Corporate. It trades about 0.07 of its potential returns per unit of risk. Payden Porate Bond is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  980.00  in Payden Porate Bond on September 5, 2024 and sell it today you would earn a total of  9.00  from holding Payden Porate Bond or generate 0.92% return on investment over 90 days.

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

Payden E Bond  vs.  Payden Porate Bond

Payden E Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Payden Porate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Payden Core and Payden Corporate

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

The idea behind Payden E Bond and Payden Porate 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..