Correlation Between Municipal Bond and Fixed Income
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Fixed Income 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 Municipal Bond and Fixed Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Municipal Bond Fund and Fixed Income Shares, you can compare the effects of market volatilities on Municipal Bond and Fixed Income 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 Municipal Bond with a short position of Fixed Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Fixed Income.
Diversification Opportunities for Municipal Bond and Fixed Income
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Municipal and Fixed is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Fund and Fixed Income Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fixed Income Shares and Municipal Bond 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 Municipal Bond Fund are associated (or correlated) with Fixed Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fixed Income Shares has no effect on the direction of Municipal Bond i.e., Municipal Bond and Fixed Income go up and down completely randomly.
Pair Corralation between Municipal Bond and Fixed Income
Assuming the 90 days horizon Municipal Bond Fund is expected to generate 0.97 times more return on investment than Fixed Income. However, Municipal Bond Fund is 1.04 times less risky than Fixed Income. It trades about 0.07 of its potential returns per unit of risk. Fixed Income Shares is currently generating about 0.03 per unit of risk. If you would invest 947.00 in Municipal Bond Fund on September 3, 2024 and sell it today you would earn a total of 10.00 from holding Municipal Bond Fund or generate 1.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Municipal Bond Fund vs. Fixed Income Shares
Performance |
| Timeline |
| Municipal Bond |
| Fixed Income Shares |
Municipal Bond and Fixed Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Fixed Income
The main advantage of trading using opposite Municipal Bond and Fixed Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Fixed Income 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 Fixed Income will offset losses from the drop in Fixed Income's long position.| Municipal Bond vs. Global Gold Fund | Municipal Bond vs. Short Precious Metals | Municipal Bond vs. Gamco Global Gold | Municipal Bond vs. International Investors Gold |
| Fixed Income vs. Qs Large Cap | Fixed Income vs. Jhancock Disciplined Value | Fixed Income vs. Dodge Cox Stock | Fixed Income vs. Tax Managed Large Cap |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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