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

BREAKING DOWN '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. Spread

    1. The difference between the bid and the ask price of a security ...
  3. Flat Yield Curve

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

    An interest rate environment in which long-term debt instruments ...
  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 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. Fundamental Analysis

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
  5. Investing Basics

    Understanding the Spot Market

    A spot market is a market where a commodity or security is bought or sold and then delivered immediately.
  6. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  7. Term

    Estimating with Subjective Probability

    Subjective probability is someone’s estimation that an event will occur.
  8. Investing Basics

    Learn About the New York Stock Exchange

    The New York Stock Exchange (NYSE) is nicknamed the “Big Board,” and for good reason. It’s the largest, oldest and best-known stock exchange in the world.
  9. Investing Basics

    Understanding the Modigliani-Miller Theorem

    The Modigliani-Miller (M&M) theorem is used in financial and economic studies to analyze the value of a firm, such as a business or a corporation.
  10. Economics

    Explaining Kurtosis

    Kurtosis describes the distribution of data around an average.
RELATED FAQS
  1. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  2. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  4. What is the difference between shares outstanding and floating stock?

    Shares outstanding and floating stock are different measures of the shares of a particular stock. Shares outstanding is the ... Read Full Answer >>
  5. What is the difference between market risk premium and equity risk premium?

    The only meaningful difference between market-risk premium and equity-risk premium is scope. Both terms refer to the same ... Read Full Answer >>
  6. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  3. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  4. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  5. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!