Correlation Between Morningstar Municipal and High Yield
Can any of the company-specific risk be diversified away by investing in both Morningstar Municipal and High Yield 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 Morningstar Municipal and High Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morningstar Municipal Bond and High Yield Municipal Fund, you can compare the effects of market volatilities on Morningstar Municipal and High Yield 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 Morningstar Municipal with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Municipal and High Yield.
Diversification Opportunities for Morningstar Municipal and High Yield
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Morningstar and High is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal and Morningstar 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 Morningstar Municipal Bond are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and High Yield go up and down completely randomly.
Pair Corralation between Morningstar Municipal and High Yield
Assuming the 90 days horizon Morningstar Municipal Bond is expected to generate 0.7 times more return on investment than High Yield. However, Morningstar Municipal Bond is 1.43 times less risky than High Yield. It trades about 0.08 of its potential returns per unit of risk. High Yield Municipal Fund is currently generating about 0.04 per unit of risk. If you would invest 1,002 in Morningstar Municipal Bond on September 13, 2024 and sell it today you would earn a total of 7.00 from holding Morningstar Municipal Bond or generate 0.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 97.67% |
| Values | Daily Returns |
Morningstar Municipal Bond vs. High Yield Municipal Fund
Performance |
| Timeline |
| Morningstar Municipal |
| High Yield Municipal |
Morningstar Municipal and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar Municipal and High Yield
The main advantage of trading using opposite Morningstar Municipal and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Municipal position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield's long position.| Morningstar Municipal vs. Goldman Sachs Clean | Morningstar Municipal vs. Europac Gold Fund | Morningstar Municipal vs. Oppenheimer Gold Special | Morningstar Municipal vs. Great West Goldman Sachs |
| High Yield vs. Old Westbury Municipal | High Yield vs. Transamerica Intermediate Muni | High Yield vs. Morningstar Municipal Bond | High Yield vs. Baird Strategic Municipal |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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