Correlation Between Payden Government and Leisure Fund

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

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

Diversification Opportunities for Payden Government and Leisure Fund

-0.1

Correlation Coefficient

Payden Government  Leisure Fund

Good diversification

The 3 months correlation between Payden and Leisure is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Payden Government Fund and Leisure Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leisure Fund Class and Payden Government 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 Government Fund are associated (or correlated) with Leisure Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leisure Fund Class has no effect on the direction of Payden Government i.e., Payden Government and Leisure Fund go up and down completely randomly.

Pair Corralation between Payden Government and Leisure Fund

Assuming the 90 days horizon Payden Government is expected to generate 11.1 times less return on investment than Leisure Fund. But when comparing it to its historical volatility, Payden Government Fund is 5.96 times less risky than Leisure Fund. It trades about 0.07 of its potential returns per unit of risk. Leisure Fund Class is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,219  in Leisure Fund Class on October 8, 2024 and sell it today you would earn a total of  1,089  from holding Leisure Fund Class or generate 15.09% return on investment over 90 days.

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

Payden Government Fund  vs.  Leisure Fund Class

Payden Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Leisure Fund Class

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Leisure Fund Class are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Leisure 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 Payden Government and Leisure Fund

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

The idea behind Payden Government Fund and Leisure Fund Class 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.