Correlation Between Ishares Municipal and American Beacon
Can any of the company-specific risk be diversified away by investing in both Ishares Municipal and American Beacon 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 Ishares Municipal and American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ishares Municipal Bond and American Beacon Sim, you can compare the effects of market volatilities on Ishares Municipal and American Beacon 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 Ishares Municipal with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ishares Municipal and American Beacon.
Diversification Opportunities for Ishares Municipal and American Beacon
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ishares and American is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and American Beacon Sim in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Sim and Ishares 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 Ishares Municipal Bond are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Sim has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and American Beacon go up and down completely randomly.
Pair Corralation between Ishares Municipal and American Beacon
Assuming the 90 days horizon Ishares Municipal Bond is expected to generate 2.3 times more return on investment than American Beacon. However, Ishares Municipal is 2.3 times more volatile than American Beacon Sim. It trades about 0.22 of its potential returns per unit of risk. American Beacon Sim is currently generating about 0.04 per unit of risk. If you would invest 1,101 in Ishares Municipal Bond on September 2, 2024 and sell it today you would earn a total of 16.00 from holding Ishares Municipal Bond or generate 1.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ishares Municipal Bond vs. American Beacon Sim
Performance |
| Timeline |
| Ishares Municipal Bond |
| American Beacon Sim |
Ishares Municipal and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ishares Municipal and American Beacon
The main advantage of trading using opposite Ishares Municipal and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ishares Municipal position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.| Ishares Municipal vs. Calvert Developed Market | Ishares Municipal vs. Siit Emerging Markets | Ishares Municipal vs. Locorr Market Trend | Ishares Municipal vs. Ab All Market |
| American Beacon vs. T Rowe Price | American Beacon vs. Ab Impact Municipal | American Beacon vs. Ishares Municipal Bond | American Beacon vs. T Rowe Price |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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