Correlation Between Payden Core and Payden California

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

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

Diversification Opportunities for Payden Core and Payden California

0.62

Correlation Coefficient

Payden Core  Payden California

Poor diversification

The 3 months correlation between Payden and Payden is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Payden Core Bond and Payden California Muncipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden California and Payden Core 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 Core Bond are associated (or correlated) with Payden California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden California has no effect on the direction of Payden Core i.e., Payden Core and Payden California go up and down completely randomly.

Pair Corralation between Payden Core and Payden California

Assuming the 90 days horizon Payden Core Bond is expected to under-perform the Payden California. In addition to that, Payden Core is 1.45 times more volatile than Payden California Muncipal. It trades about -0.09 of its total potential returns per unit of risk. Payden California Muncipal is currently generating about 0.04 per unit of volatility. If you would invest  996.00  in Payden California Muncipal on September 12, 2024 and sell it today you would earn a total of  5.00  from holding Payden California Muncipal or generate 0.5% return on investment over 90 days.

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

Payden Core Bond  vs.  Payden California Muncipal

Payden Core Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Payden Core 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.

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.

Pair Trading with Payden Core and Payden California

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

The idea behind Payden Core Bond and Payden California Muncipal 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.