Correlation Between High Yield and International Equity

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

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

Diversification Opportunities for High Yield and International Equity

-0.44

Correlation Coefficient

High Yield  International Equity

Very good diversification

The 3 months correlation between High and International is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Fund and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity and High Yield 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 High Yield Fund are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of High Yield i.e., High Yield and International Equity go up and down completely randomly.

Pair Corralation between High Yield and International Equity

Assuming the 90 days horizon High Yield Fund is expected to generate 0.03 times more return on investment than International Equity. However, High Yield Fund is 39.88 times less risky than International Equity. It trades about 0.1 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.21 per unit of risk. If you would invest  326.00  in High Yield Fund on September 20, 2024 and sell it today you would earn a total of  1.00  from holding High Yield Fund or generate 0.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

High Yield Fund  vs.  International Equity Portfolio

High Yield Fund

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Portfolio 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 basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with High Yield and International Equity

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

The idea behind High Yield Fund and International Equity Portfolio 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.

Check out your portfolio center.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.