Correlation Between Global Diversified and California Municipal
Can any of the company-specific risk be diversified away by investing in both Global Diversified and California Municipal 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 Global Diversified and California Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Diversified Income and California Municipal Fund, you can compare the effects of market volatilities on Global Diversified and California Municipal 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 Global Diversified with a short position of California Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Diversified and California Municipal.
Diversification Opportunities for Global Diversified and California Municipal
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and California is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Global Diversified Income and California Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Municipal and Global Diversified 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 Global Diversified Income are associated (or correlated) with California Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Municipal has no effect on the direction of Global Diversified i.e., Global Diversified and California Municipal go up and down completely randomly.
Pair Corralation between Global Diversified and California Municipal
Assuming the 90 days horizon Global Diversified Income is expected to generate 1.03 times more return on investment than California Municipal. However, Global Diversified is 1.03 times more volatile than California Municipal Fund. It trades about 0.14 of its potential returns per unit of risk. California Municipal Fund is currently generating about 0.14 per unit of risk. If you would invest 1,151 in Global Diversified Income on August 30, 2024 and sell it today you would earn a total of 38.00 from holding Global Diversified Income or generate 3.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Diversified Income vs. California Municipal Fund
Performance |
| Timeline |
| Global Diversified Income |
| California Municipal |
Global Diversified and California Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Diversified and California Municipal
The main advantage of trading using opposite Global Diversified and California Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Diversified position performs unexpectedly, California Municipal 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 California Municipal will offset losses from the drop in California Municipal's long position.| Global Diversified vs. Strategic Asset Management | Global Diversified vs. Strategic Asset Management | Global Diversified vs. Strategic Asset Management | Global Diversified vs. Strategic Asset Management |
| California Municipal vs. Ishares Municipal Bond | California Municipal vs. Morningstar Municipal Bond | California Municipal vs. T Rowe Price | California Municipal vs. Intermediate Term Tax Free Bond |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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