Correlation Between International Stock and Morningstar Municipal
Can any of the company-specific risk be diversified away by investing in both International Stock 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 International Stock and Morningstar Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Stock Fund and Morningstar Municipal Bond, you can compare the effects of market volatilities on International Stock 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 International Stock with a short position of Morningstar Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Stock and Morningstar Municipal.
Diversification Opportunities for International Stock and Morningstar Municipal
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between International and Morningstar is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding International Stock Fund and Morningstar Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Municipal and International Stock 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 International Stock Fund 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 International Stock i.e., International Stock and Morningstar Municipal go up and down completely randomly.
Pair Corralation between International Stock and Morningstar Municipal
Assuming the 90 days horizon International Stock Fund is expected to generate 4.85 times more return on investment than Morningstar Municipal. However, International Stock is 4.85 times more volatile than Morningstar Municipal Bond. It trades about 0.23 of its potential returns per unit of risk. Morningstar Municipal Bond is currently generating about 0.1 per unit of risk. If you would invest 2,291 in International Stock Fund on October 25, 2024 and sell it today you would earn a total of 79.00 from holding International Stock Fund or generate 3.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Stock Fund vs. Morningstar Municipal Bond
Performance |
| Timeline |
| International Stock |
| Morningstar Municipal |
International Stock and Morningstar Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Stock and Morningstar Municipal
The main advantage of trading using opposite International Stock and Morningstar Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Stock 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.| International Stock vs. Metropolitan West Porate | International Stock vs. Intermediate Term Tax Free Bond | International Stock vs. Old Westbury Municipal | International Stock vs. Franklin Government Money |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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