Correlation Between Small Cap and DWS Municipal
Can any of the company-specific risk be diversified away by investing in both Small Cap and DWS 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 Small Cap and DWS Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and DWS Municipal Income, you can compare the effects of market volatilities on Small Cap and DWS 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 Small Cap with a short position of DWS Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and DWS Municipal.
Diversification Opportunities for Small Cap and DWS Municipal
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Small and DWS is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and DWS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DWS Municipal Income and Small Cap 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 Small Cap Core are associated (or correlated) with DWS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DWS Municipal Income has no effect on the direction of Small Cap i.e., Small Cap and DWS Municipal go up and down completely randomly.
Pair Corralation between Small Cap and DWS Municipal
Assuming the 90 days horizon Small Cap is expected to generate 1.01 times less return on investment than DWS Municipal. In addition to that, Small Cap is 1.94 times more volatile than DWS Municipal Income. It trades about 0.06 of its total potential returns per unit of risk. DWS Municipal Income is currently generating about 0.12 per unit of volatility. If you would invest 847.00 in DWS Municipal Income on August 27, 2024 and sell it today you would earn a total of 139.00 from holding DWS Municipal Income or generate 16.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. DWS Municipal Income
Performance |
| Timeline |
| Small Cap Core |
| DWS Municipal Income |
Small Cap and DWS Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and DWS Municipal
The main advantage of trading using opposite Small Cap and DWS Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, DWS 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 DWS Municipal will offset losses from the drop in DWS Municipal's long position.| Small Cap vs. Pro Blend Moderate Term | Small Cap vs. Hartford Moderate Allocation | Small Cap vs. Qs Moderate Growth | Small Cap vs. Dimensional Retirement Income |
| DWS Municipal vs. DTF Tax Free | DWS Municipal vs. Blackrock Muniyield Quality | DWS Municipal vs. Blackrock Muni Intermediate | DWS Municipal vs. Blackrock Muniholdings Quality |
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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