Correlation Between High Yield and Element Solutions

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

By analyzing existing cross correlation between High Yield Municipal Fund and Element Solutions, you can compare the effects of market volatilities on High Yield and Element Solutions 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 Element Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and Element Solutions.

Diversification Opportunities for High Yield and Element Solutions

0.22

Correlation Coefficient

High Yield  Element Solutions

Modest diversification

The 3 months correlation between High and Element is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions 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 Municipal Fund are associated (or correlated) with Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of High Yield i.e., High Yield and Element Solutions go up and down completely randomly.

Pair Corralation between High Yield and Element Solutions

Assuming the 90 days horizon High Yield is expected to generate 7.04 times less return on investment than Element Solutions. But when comparing it to its historical volatility, High Yield Municipal Fund is 9.35 times less risky than Element Solutions. It trades about 0.11 of its potential returns per unit of risk. Element Solutions is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,399  in Element Solutions on March 17, 2024 and sell it today you would earn a total of  247.00  from holding Element Solutions or generate 10.3% return on investment over 90 days.

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

High Yield Municipal Fund  vs.  Element Solutions

High Yield Municipal

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 8 (%) 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.

Element Solutions

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Element Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Element Solutions may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with High Yield and Element Solutions

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

The idea behind High Yield Municipal Fund and Element Solutions 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.