Correlation Between Long-term and Municipal Bond
Can any of the company-specific risk be diversified away by investing in both Long-term and Municipal Bond 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 Long-term and Municipal Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Long Term Government Fund and Municipal Bond Fund, you can compare the effects of market volatilities on Long-term and Municipal Bond 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 Long-term with a short position of Municipal Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long-term and Municipal Bond.
Diversification Opportunities for Long-term and Municipal Bond
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Long-term and Municipal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Long Term Government Fund and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond and Long-term 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 Long Term Government Fund are associated (or correlated) with Municipal Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Municipal Bond has no effect on the direction of Long-term i.e., Long-term and Municipal Bond go up and down completely randomly.
Pair Corralation between Long-term and Municipal Bond
Assuming the 90 days horizon Long Term Government Fund is expected to generate 3.07 times more return on investment than Municipal Bond. However, Long-term is 3.07 times more volatile than Municipal Bond Fund. It trades about 0.08 of its potential returns per unit of risk. Municipal Bond Fund is currently generating about 0.19 per unit of risk. If you would invest 1,426 in Long Term Government Fund on September 1, 2024 and sell it today you would earn a total of 24.00 from holding Long Term Government Fund or generate 1.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Long Term Government Fund vs. Municipal Bond Fund
Performance |
| Timeline |
| Long Term Government |
| Municipal Bond |
Long-term and Municipal Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Long-term and Municipal Bond
The main advantage of trading using opposite Long-term and Municipal Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long-term position performs unexpectedly, Municipal Bond 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 Municipal Bond will offset losses from the drop in Municipal Bond's long position.| Long-term vs. Jhancock Short Duration | Long-term vs. Aqr Sustainable Long Short | Long-term vs. Quantitative Longshort Equity | Long-term vs. Sterling Capital Short |
| Municipal Bond vs. Old Westbury Short Term | Municipal Bond vs. Quantitative Longshort Equity | Municipal Bond vs. Aqr Sustainable Long Short | Municipal Bond vs. Astor Longshort Fund |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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