Correlation Between High-yield Municipal and First Trust
Can any of the company-specific risk be diversified away by investing in both High-yield Municipal and First Trust 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 Municipal and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between High Yield Municipal Fund and First Trust Large, you can compare the effects of market volatilities on High-yield Municipal and First Trust 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 Municipal with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of High-yield Municipal and First Trust.
Diversification Opportunities for High-yield Municipal and First Trust
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between High-yield and First is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and First Trust Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Large and High-yield Municipal 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 Municipal Fund are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Large has no effect on the direction of High-yield Municipal i.e., High-yield Municipal and First Trust go up and down completely randomly.
Pair Corralation between High-yield Municipal and First Trust
Assuming the 90 days horizon High Yield Municipal Fund is expected to under-perform the First Trust. But the mutual fund apears to be less risky and, when comparing its historical volatility, High Yield Municipal Fund is 2.21 times less risky than First Trust. The mutual fund trades about -0.03 of its potential returns per unit of risk. The First Trust Large is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 10,417 in First Trust Large on August 30, 2024 and sell it today you would earn a total of 832.00 from holding First Trust Large or generate 7.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 97.73% |
| Values | Daily Returns |
High Yield Municipal Fund vs. First Trust Large
Performance |
| Timeline |
| High Yield Municipal |
| First Trust Large |
High-yield Municipal and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High-yield Municipal and First Trust
The main advantage of trading using opposite High-yield Municipal and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High-yield Municipal position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| High-yield Municipal vs. High Yield Fund Investor | High-yield Municipal vs. Intermediate Term Tax Free Bond | High-yield Municipal vs. California High Yield Municipal | High-yield Municipal vs. T Rowe Price |
| First Trust vs. First Trust Large | First Trust vs. First Trust Small | First Trust vs. First Trust Mid | First Trust vs. First Trust Large |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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