Correlation Between Inverse High and Short-term Income

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

By analyzing existing cross correlation between Inverse High Yield and Short Term Income Fund, you can compare the effects of market volatilities on Inverse High and Short-term Income 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 Inverse High with a short position of Short-term Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse High and Short-term Income.

Diversification Opportunities for Inverse High and Short-term Income

-0.51

Correlation Coefficient

Inverse High  Short-term Income

Excellent diversification

The 3 months correlation between Inverse and Short-term is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Inverse High Yield and Short Term Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Income and Inverse 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 Inverse High Yield are associated (or correlated) with Short-term Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Income has no effect on the direction of Inverse High i.e., Inverse High and Short-term Income go up and down completely randomly.

Pair Corralation between Inverse High and Short-term Income

Assuming the 90 days horizon Inverse High Yield is expected to under-perform the Short-term Income. In addition to that, Inverse High is 2.91 times more volatile than Short Term Income Fund. It trades about -0.04 of its total potential returns per unit of risk. Short Term Income Fund is currently generating about 0.22 per unit of volatility. If you would invest  1,189  in Short Term Income Fund on December 21, 2024 and sell it today you would earn a total of  17.00  from holding Short Term Income Fund or generate 1.43% return on investment over 90 days.

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

Inverse High Yield  vs.  Short Term Income Fund

Inverse High Yield

Risk-Adjusted Performance

Very Weak

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

Short Term Income

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Income Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Short-term Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inverse High and Short-term Income

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

The idea behind Inverse High Yield and Short Term Income Fund 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.