Correlation Between California High-yield and Intermediate Term
Can any of the company-specific risk be diversified away by investing in both California High-yield and Intermediate Term 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 Intermediate Term 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 Intermediate Term Tax Free Bond, you can compare the effects of market volatilities on California High-yield and Intermediate Term 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 Intermediate Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of California High-yield and Intermediate Term.
Diversification Opportunities for California High-yield and Intermediate Term
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between California and Intermediate is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding California High Yield Municipa and Intermediate Term Tax Free Bon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Tax 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 Intermediate Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Tax has no effect on the direction of California High-yield i.e., California High-yield and Intermediate Term go up and down completely randomly.
Pair Corralation between California High-yield and Intermediate Term
Assuming the 90 days horizon California High-yield is expected to generate 1.21 times less return on investment than Intermediate Term. In addition to that, California High-yield is 1.39 times more volatile than Intermediate Term Tax Free Bond. It trades about 0.08 of its total potential returns per unit of risk. Intermediate Term Tax Free Bond is currently generating about 0.14 per unit of volatility. If you would invest 1,072 in Intermediate Term Tax Free Bond on August 28, 2024 and sell it today you would earn a total of 8.00 from holding Intermediate Term Tax Free Bond or generate 0.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
California High Yield Municipa vs. Intermediate Term Tax Free Bon
Performance |
| Timeline |
| California High Yield |
| Intermediate Term Tax |
California High-yield and Intermediate Term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California High-yield and Intermediate Term
The main advantage of trading using opposite California High-yield and Intermediate Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California High-yield position performs unexpectedly, Intermediate Term 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 Intermediate Term will offset losses from the drop in Intermediate Term's long position.The idea behind California High Yield Municipal and Intermediate Term Tax Free Bond 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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