Correlation Between American Funds and Morningstar Municipal
Can any of the company-specific risk be diversified away by investing in both American Funds and Morningstar 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 Funds and Morningstar Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Inflation and Morningstar Municipal Bond, you can compare the effects of market volatilities on American Funds and Morningstar 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 Funds with a short position of Morningstar Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Morningstar Municipal.
Diversification Opportunities for American Funds and Morningstar Municipal
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Morningstar is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Inflation and Morningstar Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Municipal and American Funds 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 Funds Inflation are associated (or correlated) with Morningstar Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Municipal has no effect on the direction of American Funds i.e., American Funds and Morningstar Municipal go up and down completely randomly.
Pair Corralation between American Funds and Morningstar Municipal
Assuming the 90 days horizon American Funds is expected to generate 3.32 times less return on investment than Morningstar Municipal. In addition to that, American Funds is 2.94 times more volatile than Morningstar Municipal Bond. It trades about 0.01 of its total potential returns per unit of risk. Morningstar Municipal Bond is currently generating about 0.1 per unit of volatility. If you would invest 930.00 in Morningstar Municipal Bond on September 4, 2024 and sell it today you would earn a total of 79.00 from holding Morningstar Municipal Bond or generate 8.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Inflation vs. Morningstar Municipal Bond
Performance |
| Timeline |
| American Funds Inflation |
| Morningstar Municipal |
American Funds and Morningstar Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Morningstar Municipal
The main advantage of trading using opposite American Funds and Morningstar Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Morningstar 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 Morningstar Municipal will offset losses from the drop in Morningstar Municipal's long position.| American Funds vs. Omni Small Cap Value | American Funds vs. Ab Value Fund | American Funds vs. Rbb Fund | American Funds vs. Vanguard Windsor Fund |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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