Correlation Between Payden California and Payden Core

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

By analyzing existing cross correlation between Payden California Muncipal and Payden E Bond, you can compare the effects of market volatilities on Payden California and Payden Core 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 California with a short position of Payden Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Payden California and Payden Core.

Diversification Opportunities for Payden California and Payden Core

0.65

Correlation Coefficient

Payden California  Payden Core

Poor diversification

The 3 months correlation between Payden and Payden is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Payden California Muncipal and Payden E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden E Bond and Payden California 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 California Muncipal are associated (or correlated) with Payden Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden E Bond has no effect on the direction of Payden California i.e., Payden California and Payden Core go up and down completely randomly.

Pair Corralation between Payden California and Payden Core

Assuming the 90 days horizon Payden California Muncipal is expected to generate 0.69 times more return on investment than Payden Core. However, Payden California Muncipal is 1.46 times less risky than Payden Core. It trades about 0.05 of its potential returns per unit of risk. Payden E Bond is currently generating about -0.09 per unit of risk. If you would invest  995.00  in Payden California Muncipal on September 5, 2024 and sell it today you would earn a total of  6.00  from holding Payden California Muncipal or generate 0.6% return on investment over 90 days.

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

Payden California Muncipal  vs.  Payden E Bond

Payden California

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Payden California Muncipal are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Payden California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Payden E Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Payden E Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Payden Core 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 California and Payden Core

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

The idea behind Payden California Muncipal and Payden E Bond 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.