Correlation Between Payden Absolute and Plumb Balanced

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

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

Diversification Opportunities for Payden Absolute and Plumb Balanced

0.88

Correlation Coefficient

Payden Absolute  Plumb Balanced

Very poor diversification

The 3 months correlation between Payden and Plumb is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Payden Absolute Return and Plumb Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced and Payden Absolute 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 Absolute Return are associated (or correlated) with Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of Payden Absolute i.e., Payden Absolute and Plumb Balanced go up and down completely randomly.

Pair Corralation between Payden Absolute and Plumb Balanced

Assuming the 90 days horizon Payden Absolute is expected to generate 2.92 times less return on investment than Plumb Balanced. But when comparing it to its historical volatility, Payden Absolute Return is 8.93 times less risky than Plumb Balanced. It trades about 0.39 of its potential returns per unit of risk. Plumb Balanced Fund is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,902  in Plumb Balanced Fund on September 14, 2024 and sell it today you would earn a total of  182.00  from holding Plumb Balanced Fund or generate 4.66% return on investment over 90 days.

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

Payden Absolute Return  vs.  Plumb Balanced Fund

Payden Absolute Return

Risk-Adjusted Performance

30 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Payden Absolute Return are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Payden Absolute is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Plumb Balanced

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plumb Balanced Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Plumb Balanced 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 Absolute and Plumb Balanced

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

The idea behind Payden Absolute Return and Plumb Balanced 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.