Correlation Between High-yield Municipal and Capital Income
Can any of the company-specific risk be diversified away by investing in both High-yield Municipal and Capital Income 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 Capital Income 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 Capital Income Builder, you can compare the effects of market volatilities on High-yield Municipal and Capital Income 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 Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of High-yield Municipal and Capital Income.
Diversification Opportunities for High-yield Municipal and Capital Income
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between High-yield and Capital is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder 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 Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of High-yield Municipal i.e., High-yield Municipal and Capital Income go up and down completely randomly.
Pair Corralation between High-yield Municipal and Capital Income
Assuming the 90 days horizon High-yield Municipal is expected to generate 1.91 times less return on investment than Capital Income. But when comparing it to its historical volatility, High Yield Municipal Fund is 1.76 times less risky than Capital Income. It trades about 0.07 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 6,036 in Capital Income Builder on August 29, 2024 and sell it today you would earn a total of 1,259 from holding Capital Income Builder or generate 20.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Yield Municipal Fund vs. Capital Income Builder
Performance |
| Timeline |
| High Yield Municipal |
| Capital Income Builder |
High-yield Municipal and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High-yield Municipal and Capital Income
The main advantage of trading using opposite High-yield Municipal and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High-yield Municipal position performs unexpectedly, Capital Income 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 Capital Income will offset losses from the drop in Capital Income'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 |
| Capital Income vs. Transamerica Intermediate Muni | Capital Income vs. California High Yield Municipal | Capital Income vs. Counterpoint Tactical Municipal | Capital Income vs. Ab Impact Municipal |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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