Correlation Between Us Government and Short-term Municipal
Can any of the company-specific risk be diversified away by investing in both Us Government and Short-term 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 Us Government and Short-term Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Government Securities and Short Term Municipal Bond, you can compare the effects of market volatilities on Us Government and Short-term 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 Us Government with a short position of Short-term Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Short-term Municipal.
Diversification Opportunities for Us Government and Short-term Municipal
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between RGVCX and Short-term is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Short Term Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Municipal and Us Government 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 Us Government Securities are associated (or correlated) with Short-term Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Municipal has no effect on the direction of Us Government i.e., Us Government and Short-term Municipal go up and down completely randomly.
Pair Corralation between Us Government and Short-term Municipal
Assuming the 90 days horizon Us Government Securities is expected to generate 3.74 times more return on investment than Short-term Municipal. However, Us Government is 3.74 times more volatile than Short Term Municipal Bond. It trades about 0.08 of its potential returns per unit of risk. Short Term Municipal Bond is currently generating about 0.24 per unit of risk. If you would invest 1,156 in Us Government Securities on September 1, 2024 and sell it today you would earn a total of 38.00 from holding Us Government Securities or generate 3.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Us Government Securities vs. Short Term Municipal Bond
Performance |
| Timeline |
| Us Government Securities |
| Short Term Municipal |
Us Government and Short-term Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Government and Short-term Municipal
The main advantage of trading using opposite Us Government and Short-term Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government position performs unexpectedly, Short-term 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 Short-term Municipal will offset losses from the drop in Short-term Municipal's long position.| Us Government vs. Bond Fund Of | Us Government vs. Intermediate Bond Fund | Us Government vs. American Mutual Fund | Us Government vs. Smallcap World Fund |
| Short-term Municipal vs. Municipal Bond Fund | Short-term Municipal vs. Thornburg Limited Term | Short-term Municipal vs. Wells Fargo Advantage | Short-term Municipal vs. Wells Fargo Advantage |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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