Correlation Between High-yield Municipal and High Yield
Can any of the company-specific risk be diversified away by investing in both High-yield Municipal and High Yield 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 High Yield 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 High Yield Fund R6, you can compare the effects of market volatilities on High-yield Municipal and High Yield 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 High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of High-yield Municipal and High Yield.
Diversification Opportunities for High-yield Municipal and High Yield
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between High-yield and High is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and High Yield Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund 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 High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of High-yield Municipal i.e., High-yield Municipal and High Yield go up and down completely randomly.
Pair Corralation between High-yield Municipal and High Yield
Assuming the 90 days horizon High Yield Municipal Fund is expected to generate 1.35 times more return on investment than High Yield. However, High-yield Municipal is 1.35 times more volatile than High Yield Fund R6. It trades about 0.25 of its potential returns per unit of risk. High Yield Fund R6 is currently generating about 0.16 per unit of risk. If you would invest 883.00 in High Yield Municipal Fund on November 29, 2024 and sell it today you would earn a total of 11.00 from holding High Yield Municipal Fund or generate 1.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Yield Municipal Fund vs. High Yield Fund R6
Performance |
| Timeline |
| High Yield Municipal |
| High Yield Fund |
High-yield Municipal and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High-yield Municipal and High Yield
The main advantage of trading using opposite High-yield Municipal and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High-yield Municipal position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield's long position.The idea behind High Yield Municipal Fund and High Yield Fund R6 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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