Correlation Between New York and Diversified Municipal
Can any of the company-specific risk be diversified away by investing in both New York and Diversified 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 New York and Diversified Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New York Municipal and Diversified Municipal Portfolio, you can compare the effects of market volatilities on New York and Diversified 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 New York with a short position of Diversified Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of New York and Diversified Municipal.
Diversification Opportunities for New York and Diversified Municipal
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between New and Diversified is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding New York Municipal and Diversified Municipal Portfoli in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Municipal and New York 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 New York Municipal are associated (or correlated) with Diversified Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Municipal has no effect on the direction of New York i.e., New York and Diversified Municipal go up and down completely randomly.
Pair Corralation between New York and Diversified Municipal
Assuming the 90 days horizon New York is expected to generate 1.46 times less return on investment than Diversified Municipal. But when comparing it to its historical volatility, New York Municipal is 1.06 times less risky than Diversified Municipal. It trades about 0.06 of its potential returns per unit of risk. Diversified Municipal Portfolio is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,321 in Diversified Municipal Portfolio on August 26, 2024 and sell it today you would earn a total of 69.00 from holding Diversified Municipal Portfolio or generate 5.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New York Municipal vs. Diversified Municipal Portfoli
Performance |
| Timeline |
| New York Municipal |
| Diversified Municipal |
New York and Diversified Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New York and Diversified Municipal
The main advantage of trading using opposite New York and Diversified Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New York position performs unexpectedly, Diversified 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 Diversified Municipal will offset losses from the drop in Diversified Municipal's long position.| New York vs. Ab Global E | New York vs. Ab Global E | New York vs. Ab Global E | New York vs. Ab Minnesota Portfolio |
| Diversified Municipal vs. Ab Global E | Diversified Municipal vs. Ab Global E | Diversified Municipal vs. Ab Minnesota Portfolio | Diversified Municipal vs. Ab All Market |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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