Correlation Between Morningstar Municipal and Optimum Fixed
Can any of the company-specific risk be diversified away by investing in both Morningstar Municipal and Optimum Fixed 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 Optimum Fixed 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 Optimum Fixed Income, you can compare the effects of market volatilities on Morningstar Municipal and Optimum Fixed 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 Optimum Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Municipal and Optimum Fixed.
Diversification Opportunities for Morningstar Municipal and Optimum Fixed
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Morningstar and Optimum is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Optimum Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum Fixed Income 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 Optimum Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Fixed Income has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Optimum Fixed go up and down completely randomly.
Pair Corralation between Morningstar Municipal and Optimum Fixed
Assuming the 90 days horizon Morningstar Municipal is expected to generate 1.29 times less return on investment than Optimum Fixed. But when comparing it to its historical volatility, Morningstar Municipal Bond is 2.24 times less risky than Optimum Fixed. It trades about 0.13 of its potential returns per unit of risk. Optimum Fixed Income is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 772.00 in Optimum Fixed Income on September 12, 2024 and sell it today you would earn a total of 76.00 from holding Optimum Fixed Income or generate 9.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.7% |
| Values | Daily Returns |
Morningstar Municipal Bond vs. Optimum Fixed Income
Performance |
| Timeline |
| Morningstar Municipal |
| Optimum Fixed Income |
Morningstar Municipal and Optimum Fixed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar Municipal and Optimum Fixed
The main advantage of trading using opposite Morningstar Municipal and Optimum Fixed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Municipal position performs unexpectedly, Optimum Fixed 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 Optimum Fixed will offset losses from the drop in Optimum Fixed's long position.The idea behind Morningstar Municipal Bond and Optimum Fixed Income 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.
| Optimum Fixed vs. Pace Municipal Fixed | Optimum Fixed vs. Bbh Intermediate Municipal | Optimum Fixed vs. Morningstar Municipal Bond | Optimum Fixed 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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