Correlation Between American High-income and Taxable Municipal
Can any of the company-specific risk be diversified away by investing in both American High-income and Taxable 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 Taxable 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 Taxable Municipal Bond, you can compare the effects of market volatilities on American High-income and Taxable 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 Taxable Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Taxable Municipal.
Diversification Opportunities for American High-income and Taxable Municipal
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Taxable is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding American High Income Municipal and Taxable Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taxable Municipal Bond 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 Taxable Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taxable Municipal Bond has no effect on the direction of American High-income i.e., American High-income and Taxable Municipal go up and down completely randomly.
Pair Corralation between American High-income and Taxable Municipal
Assuming the 90 days horizon American High Income Municipal is expected to generate 0.65 times more return on investment than Taxable Municipal. However, American High Income Municipal is 1.54 times less risky than Taxable Municipal. It trades about 0.01 of its potential returns per unit of risk. Taxable Municipal Bond is currently generating about -0.03 per unit of risk. If you would invest 1,521 in American High Income Municipal on October 26, 2024 and sell it today you would earn a total of 3.00 from holding American High Income Municipal or generate 0.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American High Income Municipal vs. Taxable Municipal Bond
Performance |
| Timeline |
| American High Income |
| Taxable Municipal Bond |
American High-income and Taxable Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American High-income and Taxable Municipal
The main advantage of trading using opposite American High-income and Taxable Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American High-income position performs unexpectedly, Taxable 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 Taxable Municipal will offset losses from the drop in Taxable Municipal's long position.| American High-income vs. Franklin Government Money | American High-income vs. Vanguard Money Market | American High-income vs. Hewitt Money Market | American High-income vs. Dws Government Money |
| Taxable Municipal vs. American High Income Municipal | Taxable Municipal vs. Nuveen Strategic Municipal | Taxable Municipal vs. Lord Abbett Intermediate | Taxable Municipal vs. Alpine Ultra Short |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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