Correlation Between Payden Equity and Select Fund

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

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

Diversification Opportunities for Payden Equity and Select Fund

0.89

Correlation Coefficient

Payden Equity  Select Fund

Very poor diversification

The 3 months correlation between Payden and Select is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Payden Equity Income and Select Fund R in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Fund R and Payden Equity 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 Equity Income are associated (or correlated) with Select Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Fund R has no effect on the direction of Payden Equity i.e., Payden Equity and Select Fund go up and down completely randomly.

Pair Corralation between Payden Equity and Select Fund

Assuming the 90 days horizon Payden Equity is expected to generate 1.48 times less return on investment than Select Fund. But when comparing it to its historical volatility, Payden Equity Income is 1.58 times less risky than Select Fund. It trades about 0.25 of its potential returns per unit of risk. Select Fund R is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  10,330  in Select Fund R on September 6, 2024 and sell it today you would earn a total of  1,459  from holding Select Fund R or generate 14.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Payden Equity Income  vs.  Select Fund R

Payden Equity Income

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Payden Equity Income are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Payden Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Select Fund R

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund R are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Select Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Payden Equity and Select Fund

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

The idea behind Payden Equity Income and Select Fund R 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.