Correlation Between California High-yield and Madison Small
Can any of the company-specific risk be diversified away by investing in both California High-yield and Madison Small 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 California High-yield and Madison Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California High Yield Municipal and Madison Small Cap, you can compare the effects of market volatilities on California High-yield and Madison Small 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 California High-yield with a short position of Madison Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of California High-yield and Madison Small.
Diversification Opportunities for California High-yield and Madison Small
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between California and Madison is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding California High Yield Municipa and Madison Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Small Cap and California High-yield 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 California High Yield Municipal are associated (or correlated) with Madison Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Small Cap has no effect on the direction of California High-yield i.e., California High-yield and Madison Small go up and down completely randomly.
Pair Corralation between California High-yield and Madison Small
Assuming the 90 days horizon California High-yield is expected to generate 3.51 times less return on investment than Madison Small. But when comparing it to its historical volatility, California High Yield Municipal is 4.92 times less risky than Madison Small. It trades about 0.15 of its potential returns per unit of risk. Madison Small Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,129 in Madison Small Cap on August 31, 2024 and sell it today you would earn a total of 187.00 from holding Madison Small Cap or generate 16.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
California High Yield Municipa vs. Madison Small Cap
Performance |
| Timeline |
| California High Yield |
| Madison Small Cap |
California High-yield and Madison Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California High-yield and Madison Small
The main advantage of trading using opposite California High-yield and Madison Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California High-yield position performs unexpectedly, Madison Small 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 Madison Small will offset losses from the drop in Madison Small's long position.| California High-yield vs. Ab All Market | California High-yield vs. Aqr Long Short Equity | California High-yield vs. Pnc Emerging Markets | California High-yield vs. Barings Emerging Markets |
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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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