Correlation Between American High-income and Nuveen Municipal
Can any of the company-specific risk be diversified away by investing in both American High-income and Nuveen Municipal 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 American High-income and Nuveen Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American High Income Municipal and Nuveen Municipal Credit, you can compare the effects of market volatilities on American High-income and Nuveen Municipal 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 American High-income with a short position of Nuveen Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Nuveen Municipal.
Diversification Opportunities for American High-income and Nuveen Municipal
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Nuveen is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding American High Income Municipal and Nuveen Municipal Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Municipal Credit and American High-income 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 American High Income Municipal are associated (or correlated) with Nuveen Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Municipal Credit has no effect on the direction of American High-income i.e., American High-income and Nuveen Municipal go up and down completely randomly.
Pair Corralation between American High-income and Nuveen Municipal
Assuming the 90 days horizon American High-income is expected to generate 1.19 times less return on investment than Nuveen Municipal. But when comparing it to its historical volatility, American High Income Municipal is 2.23 times less risky than Nuveen Municipal. It trades about 0.16 of its potential returns per unit of risk. Nuveen Municipal Credit is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,096 in Nuveen Municipal Credit on August 28, 2024 and sell it today you would earn a total of 14.00 from holding Nuveen Municipal Credit or generate 1.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American High Income Municipal vs. Nuveen Municipal Credit
Performance |
| Timeline |
| American High Income |
| Nuveen Municipal Credit |
American High-income and Nuveen Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American High-income and Nuveen Municipal
The main advantage of trading using opposite American High-income and Nuveen Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American High-income position performs unexpectedly, Nuveen Municipal 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 Nuveen Municipal will offset losses from the drop in Nuveen Municipal's long position.The idea behind American High Income Municipal and Nuveen Municipal Credit pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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