Correlation Between Payden High and Sarofim Equity

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

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

Diversification Opportunities for Payden High and Sarofim Equity

0.73

Correlation Coefficient

Payden High  Sarofim Equity

Poor diversification

The 3 months correlation between Payden and Sarofim is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Payden High Income and Sarofim Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarofim Equity and Payden High 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 High Income are associated (or correlated) with Sarofim Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarofim Equity has no effect on the direction of Payden High i.e., Payden High and Sarofim Equity go up and down completely randomly.

Pair Corralation between Payden High and Sarofim Equity

Assuming the 90 days horizon Payden High Income is expected to generate 0.17 times more return on investment than Sarofim Equity. However, Payden High Income is 5.81 times less risky than Sarofim Equity. It trades about 0.19 of its potential returns per unit of risk. Sarofim Equity is currently generating about 0.0 per unit of risk. If you would invest  574.00  in Payden High Income on October 3, 2024 and sell it today you would earn a total of  59.00  from holding Payden High Income or generate 10.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	69.64%
Values	Daily Returns

Payden High Income  vs.  Sarofim Equity

Payden High Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sarofim Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sarofim Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's primary indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Payden High and Sarofim Equity

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

The idea behind Payden High Income and Sarofim Equity 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.