Correlation Between California Intermediate and Short Duration
Can any of the company-specific risk be diversified away by investing in both California Intermediate and Short Duration 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 California Intermediate and Short Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Intermediate Municipal and Short Duration Municipal, you can compare the effects of market volatilities on California Intermediate and Short Duration 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 California Intermediate with a short position of Short Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Intermediate and Short Duration.
Diversification Opportunities for California Intermediate and Short Duration
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between California and Short is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding California Intermediate Munici and Short Duration Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Municipal and California Intermediate 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 California Intermediate Municipal are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Municipal has no effect on the direction of California Intermediate i.e., California Intermediate and Short Duration go up and down completely randomly.
Pair Corralation between California Intermediate and Short Duration
Assuming the 90 days horizon California Intermediate Municipal is expected to generate 1.92 times more return on investment than Short Duration. However, California Intermediate is 1.92 times more volatile than Short Duration Municipal. It trades about 0.26 of its potential returns per unit of risk. Short Duration Municipal is currently generating about 0.31 per unit of risk. If you would invest 930.00 in California Intermediate Municipal on November 28, 2024 and sell it today you would earn a total of 9.00 from holding California Intermediate Municipal or generate 0.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Intermediate Munici vs. Short Duration Municipal
Performance |
| Timeline |
| California Intermediate |
| Short Duration Municipal |
California Intermediate and Short Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Intermediate and Short Duration
The main advantage of trading using opposite California Intermediate and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Intermediate position performs unexpectedly, Short Duration 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 Short Duration will offset losses from the drop in Short Duration's long position.The idea behind California Intermediate Municipal and Short Duration Municipal 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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