Correlation Between Energy Basic and Municipal Bond
Can any of the company-specific risk be diversified away by investing in both Energy Basic 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 Energy Basic and Municipal Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Basic Materials and Municipal Bond Portfolio, you can compare the effects of market volatilities on Energy Basic 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 Energy Basic with a short position of Municipal Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and Municipal Bond.
Diversification Opportunities for Energy Basic and Municipal Bond
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Energy and Municipal is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Municipal Bond Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond Portfolio and Energy Basic 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 Energy Basic Materials 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 Portfolio has no effect on the direction of Energy Basic i.e., Energy Basic and Municipal Bond go up and down completely randomly.
Pair Corralation between Energy Basic and Municipal Bond
Assuming the 90 days horizon Energy Basic Materials is expected to generate 4.0 times more return on investment than Municipal Bond. However, Energy Basic is 4.0 times more volatile than Municipal Bond Portfolio. It trades about 0.11 of its potential returns per unit of risk. Municipal Bond Portfolio is currently generating about 0.19 per unit of risk. If you would invest 1,254 in Energy Basic Materials on September 3, 2024 and sell it today you would earn a total of 22.00 from holding Energy Basic Materials or generate 1.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Basic Materials vs. Municipal Bond Portfolio
Performance |
| Timeline |
| Energy Basic Materials |
| Municipal Bond Portfolio |
Energy Basic and Municipal Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Basic and Municipal Bond
The main advantage of trading using opposite Energy Basic and Municipal Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Basic 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.| Energy Basic vs. Vanguard Materials Index | Energy Basic vs. T Rowe Price | Energy Basic vs. Gmo Trust | Energy Basic vs. Gmo Resources |
| Municipal Bond vs. Adams Natural Resources | Municipal Bond vs. Energy Basic Materials | Municipal Bond vs. Hennessy Bp Energy | Municipal Bond vs. Invesco Energy 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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