Correlation Between High Yield and Northeast Investors

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

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

Diversification Opportunities for High Yield and Northeast Investors

-0.13

Correlation Coefficient

High Yield  Northeast Investors

Good diversification

The 3 months correlation between High and Northeast is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Fund Investor and Northeast Investors Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northeast Investors Trust 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 Fund Investor are associated (or correlated) with Northeast Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northeast Investors Trust has no effect on the direction of High Yield i.e., High Yield and Northeast Investors go up and down completely randomly.

Pair Corralation between High Yield and Northeast Investors

Assuming the 90 days horizon High Yield is expected to generate 1.02 times less return on investment than Northeast Investors. But when comparing it to its historical volatility, High Yield Fund Investor is 1.04 times less risky than Northeast Investors. It trades about 0.11 of its potential returns per unit of risk. Northeast Investors Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  312.00  in Northeast Investors Trust on September 14, 2024 and sell it today you would earn a total of  55.00  from holding Northeast Investors Trust or generate 17.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

High Yield Fund Investor  vs.  Northeast Investors Trust

High Yield Fund

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Fund Investor are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northeast Investors Trust

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with High Yield and Northeast Investors

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

The idea behind High Yield Fund Investor and Northeast Investors Trust 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.

Check out your portfolio center.

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.