Spread To Worst

AAA

DEFINITION of 'Spread To Worst'

The difference in overall returns between two different classes of securities, or returns from the same class, but different representative securities. The spread to worst measures the difference from the worst performing security to the best, and can be seen as a measure of dispersion of returns within a given market or between markets. The spread to worst can vary significantly depending on different market and economic variables.

Calculated as:

Spread To Worst

INVESTOPEDIA EXPLAINS 'Spread To Worst'

Some of the market and economic variables that affect the spread to worst may include investor confidence, short and long-term interest rates, amount of disposable household income and the age of the investor. A relatively high spread to worst indicates a larger measure of return dispersion versus a relatively lower spread to worst, and can also indicate the potential direction of asset allocation.

For example, a high spread to worst of 50.5% between equities (say an expected return of 55%) and government bonds (say a 4.5% return) would indicate a possible continued short-term focus by investors in the equity markets.

RELATED TERMS
  1. Stock Market

    The market in which shares of publicly held companies are issued ...
  2. Flat Yield Curve

    A yield curve in which there is little difference between short-term ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy ...
RELATED FAQS
  1. What is the theory of asymmetric information in economics?

    The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >>
  2. How does market risk differ from specific risk?

    Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... Read Full Answer >>
  3. How is perpetuity used in the Dividend Discount Model?

    The basic dividend discount model (DDM) creates an estimate of the constant growth rate, in perpetuity, expected for dividends ... Read Full Answer >>
  4. How valid is the notion of economies of scope?

    The concept of economies of scope is widely accepted in both managerial and theoretical economics. It proposes that it is ... Read Full Answer >>
  5. How can a company resist a hostile takeover?

    Several different defense strategies can be applied by existing corporate boards to ward off a hostile takeover. The most ... Read Full Answer >>
  6. What is the relationship between modified duration and interest rates?

    Modified duration is a formula that measures the value of a bond in relation to changes in interest rates. Modified duration ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Basics Of The Bid-Ask Spread

    The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders.
  2. Options & Futures

    Vertical Bull and Bear Credit Spreads

    This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
  3. Options & Futures

    Bond Spreads: A Leading Indicator For Forex

    Here we examine some telling patterns in the relation between countries' interest rates and their currency pairs.
  4. Economics

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  5. Economics

    Modified Internal Rate of Return (MIRR)

    Modified internal rate of return (MIRR) is a variant of the more traditional internal rate of return calculation.
  6. Investing Basics

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.
  7. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  8. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  9. Economics

    Where To Search For Yield Today

    It’s hard to miss that there has been a pronounced slowdown in the U.S. economy this year.
  10. Economics

    What is the Private Sector?

    The private sector encompasses all for-profit businesses that are not owned or operated by the government.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center