Correlation Between Income Growth and High Yield

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Can any of the company-specific risk be diversified away by investing in both Income Growth and High Yield 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 Income Growth and High Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Growth Fund and High Yield Municipal Fund, you can compare the effects of market volatilities on Income Growth and High Yield 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 Income Growth with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Growth and High Yield.

Diversification Opportunities for Income Growth and High Yield

0.62
  Correlation Coefficient

Poor diversification

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

Pair Corralation between Income Growth and High Yield

Assuming the 90 days horizon Income Growth Fund is expected to generate 2.72 times more return on investment than High Yield. However, Income Growth is 2.72 times more volatile than High Yield Municipal Fund. It trades about 0.06 of its potential returns per unit of risk. High Yield Municipal Fund is currently generating about 0.11 per unit of risk. If you would invest  3,062  in Income Growth Fund on July 7, 2024 and sell it today you would earn a total of  657.00  from holding Income Growth Fund or generate 21.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.79%
ValuesDaily Returns

Income Growth Fund  vs.  High Yield Municipal Fund

 Performance 
       Timeline  
Income Growth 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Income Growth Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Income Growth may actually be approaching a critical reversion point that can send shares even higher in November 2024.
High Yield Municipal 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 20 (%) 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.

Income Growth and High Yield Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Income Growth and High Yield

The main advantage of trading using opposite Income Growth and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Growth position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield's long position.
The idea behind Income Growth Fund and High Yield Municipal 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.
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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 CEOs Directory module to screen CEOs from public companies around the world.

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