Correlation Between Large Capitalization and Municipal Bond
Can any of the company-specific risk be diversified away by investing in both Large Capitalization 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 Large Capitalization and Municipal Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Capitalization Growth and Municipal Bond Portfolio, you can compare the effects of market volatilities on Large Capitalization 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 Large Capitalization with a short position of Municipal Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Capitalization and Municipal Bond.
Diversification Opportunities for Large Capitalization and Municipal Bond
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Large and Municipal is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Large Capitalization Growth 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 Large Capitalization 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 Large Capitalization Growth 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 Large Capitalization i.e., Large Capitalization and Municipal Bond go up and down completely randomly.
Pair Corralation between Large Capitalization and Municipal Bond
Assuming the 90 days horizon Large Capitalization Growth is expected to generate 5.06 times more return on investment than Municipal Bond. However, Large Capitalization is 5.06 times more volatile than Municipal Bond Portfolio. It trades about 0.33 of its potential returns per unit of risk. Municipal Bond Portfolio is currently generating about 0.12 per unit of risk. If you would invest 1,113 in Large Capitalization Growth on August 29, 2024 and sell it today you would earn a total of 91.00 from holding Large Capitalization Growth or generate 8.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Capitalization Growth vs. Municipal Bond Portfolio
Performance |
| Timeline |
| Large Capitalization |
| Municipal Bond Portfolio |
Large Capitalization and Municipal Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Capitalization and Municipal Bond
The main advantage of trading using opposite Large Capitalization and Municipal Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Capitalization 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.The idea behind Large Capitalization Growth and Municipal Bond Portfolio pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| Municipal Bond vs. Salient Alternative Beta | Municipal Bond vs. Moderately Aggressive Balanced | Municipal Bond vs. Small Capitalization Portfolio | Municipal Bond vs. Small Capitalization Portfolio |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
Other Complementary Tools
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope |