What Happens To Stocks When Bonds Go Down? | +Backtest
Understanding the relationship between bonds and stocks is crucial in financial theory. In this video, we explore the impact of interest rates on the value of stocks and explain why high rates mean less appetite for owning risky assets like stocks.
When bond prices go down, stocks tend to perform poorly. This is because lower bond prices result in higher yields and rates, making it less attractive to own risky assets like stocks.
Conversely, when bond prices go up, stocks also tend to go up. Higher bond prices mean that yields go down, which is positive for stocks.
To give you a brief primer on bonds, a bond pays the same coupon until it matures. The coupon is what is paid annually to the owners of the bond for taking the risk of owning it. When interest rates go down, the bond becomes more attractive, and investors bid up its price. Conversely, when interest rates go up, the bond becomes less attractive.
Our backtest shows that stocks perform much worse than any average random period when bonds go down, proving that it's less desirable to own risky assets like stocks during such times.
Watch this video to gain a better understanding of the relationship between bonds and stocks and how it impacts the value of stocks when bond prices go down.
Chapters
0:00 What happens to stocks when bonds go down
0:19 Why you should keep a close eye on the bond market
1:20 Bonds are less risky then stocks
1:28 Trading Rules for our test
2:10 20 backtests
2:41 Equity Curve
2:56 Statistics
3:18 Also important
#stocks, #bonds, #investing, #finance, #interestrates, #portfolios, #trading, #investors, #marketanalysis, #stockmarket, #financialtheory, #riskmanagement, #wealthmanagement, #money, #economicindicators, #investmentstrategies, #portfoliooptimization, #marketperformance, #stockanalysis, #bondanalysis
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https://www.quantifiedstrategies.com/what-happens-to-stocks-when-bonds-go-down
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