Correlation Between Municipal Bond and Large Capitalization
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Large Capitalization 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 Municipal Bond and Large Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Municipal Bond Portfolio and Large Capitalization Growth, you can compare the effects of market volatilities on Municipal Bond and Large Capitalization 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 Municipal Bond with a short position of Large Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Large Capitalization.
Diversification Opportunities for Municipal Bond and Large Capitalization
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Municipal and Large is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Portfolio and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization and Municipal Bond 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 Municipal Bond Portfolio are associated (or correlated) with Large Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capitalization has no effect on the direction of Municipal Bond i.e., Municipal Bond and Large Capitalization go up and down completely randomly.
Pair Corralation between Municipal Bond and Large Capitalization
Assuming the 90 days horizon Municipal Bond is expected to generate 17.24 times less return on investment than Large Capitalization. But when comparing it to its historical volatility, Municipal Bond Portfolio is 5.46 times less risky than Large Capitalization. It trades about 0.11 of its potential returns per unit of risk. Large Capitalization Growth is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 2,747 in Large Capitalization Growth on August 29, 2024 and sell it today you would earn a total of 228.00 from holding Large Capitalization Growth or generate 8.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Municipal Bond Portfolio vs. Large Capitalization Growth
Performance |
| Timeline |
| Municipal Bond Portfolio |
| Large Capitalization |
Municipal Bond and Large Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Large Capitalization
The main advantage of trading using opposite Municipal Bond and Large Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Large Capitalization 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 Large Capitalization will offset losses from the drop in Large Capitalization's long position.| 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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