Correlation Between Payden Gnma and Payden Equity

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

By analyzing existing cross correlation between Payden Gnma Fund and Payden Equity Income, you can compare the effects of market volatilities on Payden Gnma and Payden Equity 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 Gnma with a short position of Payden Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Payden Gnma and Payden Equity.

Diversification Opportunities for Payden Gnma and Payden Equity

-0.6

Correlation Coefficient

Payden Gnma  Payden Equity

Excellent diversification

The 3 months correlation between Payden and Payden is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Payden Gnma Fund and Payden Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Equity Income and Payden Gnma 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 Gnma Fund are associated (or correlated) with Payden Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Equity Income has no effect on the direction of Payden Gnma i.e., Payden Gnma and Payden Equity go up and down completely randomly.

Pair Corralation between Payden Gnma and Payden Equity

Assuming the 90 days horizon Payden Gnma Fund is expected to under-perform the Payden Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Payden Gnma Fund is 1.95 times less risky than Payden Equity. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Payden Equity Income is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,852  in Payden Equity Income on September 12, 2024 and sell it today you would earn a total of  101.00  from holding Payden Equity Income or generate 5.45% return on investment over 90 days.

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

Payden Gnma Fund  vs.  Payden Equity Income

Payden Gnma Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Payden Equity Income

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Payden Equity Income are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Payden Equity 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 Gnma and Payden Equity

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

The idea behind Payden Gnma Fund and Payden Equity Income 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.