Correlation Between Morningstar Municipal and First Investors
Can any of the company-specific risk be diversified away by investing in both Morningstar Municipal and First Investors 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 First Investors 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 First Investors Opportunity, you can compare the effects of market volatilities on Morningstar Municipal and First Investors 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 First Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Municipal and First Investors.
Diversification Opportunities for Morningstar Municipal and First Investors
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Morningstar and First is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and First Investors Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Investors Oppo 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 First Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Investors Oppo has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and First Investors go up and down completely randomly.
Pair Corralation between Morningstar Municipal and First Investors
Assuming the 90 days horizon Morningstar Municipal is expected to generate 3.25 times less return on investment than First Investors. But when comparing it to its historical volatility, Morningstar Municipal Bond is 5.36 times less risky than First Investors. It trades about 0.1 of its potential returns per unit of risk. First Investors Opportunity is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3,056 in First Investors Opportunity on September 14, 2024 and sell it today you would earn a total of 928.00 from holding First Investors Opportunity or generate 30.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Morningstar Municipal Bond vs. First Investors Opportunity
Performance |
| Timeline |
| Morningstar Municipal |
| First Investors Oppo |
Morningstar Municipal and First Investors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar Municipal and First Investors
The main advantage of trading using opposite Morningstar Municipal and First Investors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Municipal position performs unexpectedly, First Investors 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 First Investors will offset losses from the drop in First Investors' long position.The idea behind Morningstar Municipal Bond and First Investors Opportunity pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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