Correlation Between Payden Gnma and Payden Porate

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

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

Diversification Opportunities for Payden Gnma and Payden Porate

0.98

Correlation Coefficient

Payden Gnma  Payden Porate

Almost no diversification

The 3 months correlation between Payden and Payden is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Payden Gnma Fund and Payden Porate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Porate Bond and Payden Gnma 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 Gnma Fund are associated (or correlated) with Payden Porate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Porate Bond has no effect on the direction of Payden Gnma i.e., Payden Gnma and Payden Porate go up and down completely randomly.

Pair Corralation between Payden Gnma and Payden Porate

Assuming the 90 days horizon Payden Gnma Fund is expected to under-perform the Payden Porate. But the mutual fund apears to be less risky and, when comparing its historical volatility, Payden Gnma Fund is 1.06 times less risky than Payden Porate. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Payden Porate Bond is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  1,007  in Payden Porate Bond on September 15, 2024 and sell it today you would lose (26.00) from holding Payden Porate Bond or give up 2.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Payden Gnma Fund  vs.  Payden Porate Bond

Payden Gnma Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Payden Porate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Payden Gnma Fund and Payden Porate 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.