Correlation Between DWS Municipal and Small Cap
Can any of the company-specific risk be diversified away by investing in both DWS Municipal and Small Cap 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 DWS Municipal and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DWS Municipal Income and Small Cap Core, you can compare the effects of market volatilities on DWS Municipal and Small Cap 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 DWS Municipal with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of DWS Municipal and Small Cap.
Diversification Opportunities for DWS Municipal and Small Cap
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between DWS and Small is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding DWS Municipal Income and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and DWS 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 DWS Municipal Income are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of DWS Municipal i.e., DWS Municipal and Small Cap go up and down completely randomly.
Pair Corralation between DWS Municipal and Small Cap
Considering the 90-day investment horizon DWS Municipal Income is expected to generate 0.52 times more return on investment than Small Cap. However, DWS Municipal Income is 1.94 times less risky than Small Cap. It trades about 0.12 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.06 per unit of risk. If you would invest 847.00 in DWS Municipal Income on August 27, 2024 and sell it today you would earn a total of 139.00 from holding DWS Municipal Income or generate 16.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
DWS Municipal Income vs. Small Cap Core
Performance |
| Timeline |
| DWS Municipal Income |
| Small Cap Core |
DWS Municipal and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DWS Municipal and Small Cap
The main advantage of trading using opposite DWS Municipal and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DWS Municipal position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| DWS Municipal vs. DTF Tax Free | DWS Municipal vs. Blackrock Muniyield Quality | DWS Municipal vs. Blackrock Muni Intermediate | DWS Municipal vs. Blackrock Muniholdings Quality |
| Small Cap vs. Pace High Yield | Small Cap vs. Needham Aggressive Growth | Small Cap vs. Metropolitan West High | Small Cap vs. Pioneer High Income |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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