Correlation Between California High and High Yield

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

Diversification Opportunities for California High and High Yield

0.98
  Correlation Coefficient

Almost no diversification

The 3 months correlation between California and High is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding California High Yield Municipa 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 California High 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 California High Yield Municipal 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 California High i.e., California High and High Yield go up and down completely randomly.

Pair Corralation between California High and High Yield

Assuming the 90 days horizon California High Yield Municipal is expected to under-perform the High Yield. But the mutual fund apears to be less risky and, when comparing its historical volatility, California High Yield Municipal is 1.08 times less risky than High Yield. The mutual fund trades about -0.09 of its potential returns per unit of risk. The High Yield Municipal Fund is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  898.00  in High Yield Municipal Fund on August 9, 2024 and sell it today you would lose (4.00) from holding High Yield Municipal Fund or give up 0.45% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

California High Yield Municipa  vs.  High Yield Municipal Fund

 Performance 
       Timeline  
California High Yield 

Risk-Adjusted Performance

3 of 100

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

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 4 (%) 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.

California High and High Yield Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with California High and High Yield

The main advantage of trading using opposite California High and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California High 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 California High Yield Municipal 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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