Correlation Between Municipal Bond and High Yield
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and High Yield 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 High Yield 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 High Yield Fund, you can compare the effects of market volatilities on Municipal Bond and High Yield 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 High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and High Yield.
Diversification Opportunities for Municipal Bond and High Yield
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Municipal and High is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Fund and High Yield Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund 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 High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Municipal Bond i.e., Municipal Bond and High Yield go up and down completely randomly.
Pair Corralation between Municipal Bond and High Yield
Assuming the 90 days horizon Municipal Bond is expected to generate 1.45 times less return on investment than High Yield. In addition to that, Municipal Bond is 1.21 times more volatile than High Yield Fund. It trades about 0.11 of its total potential returns per unit of risk. High Yield Fund is currently generating about 0.2 per unit of volatility. If you would invest 770.00 in High Yield Fund on August 25, 2024 and sell it today you would earn a total of 37.00 from holding High Yield Fund or generate 4.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Municipal Bond Fund vs. High Yield Fund
Performance |
| Timeline |
| Municipal Bond |
| High Yield Fund |
Municipal Bond and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and High Yield
The main advantage of trading using opposite Municipal Bond and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield's long position.| Municipal Bond vs. Qs Large Cap | Municipal Bond vs. Siit Large Cap | Municipal Bond vs. Touchstone Large Cap | Municipal Bond vs. William Blair Large |
| High Yield vs. Pimco Rae Worldwide | High Yield vs. Pimco Rae Worldwide | High Yield vs. Pimco Rae Worldwide | High Yield vs. Pimco Rae Worldwide |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
Other Complementary Tools
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Technical Analysis Check basic technical indicators and analysis based on most latest market data | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences |