Correlation Between Municipal Bond and Large Cap
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Large Cap 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 Cap 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 Cap Value, you can compare the effects of market volatilities on Municipal Bond and Large Cap 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 Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Large Cap.
Diversification Opportunities for Municipal Bond and Large Cap
-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 Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value 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 Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Value has no effect on the direction of Municipal Bond i.e., Municipal Bond and Large Cap go up and down completely randomly.
Pair Corralation between Municipal Bond and Large Cap
Assuming the 90 days horizon Municipal Bond Portfolio is expected to generate 0.21 times more return on investment than Large Cap. However, Municipal Bond Portfolio is 4.71 times less risky than Large Cap. It trades about 0.11 of its potential returns per unit of risk. Large Cap Value is currently generating about 0.0 per unit of risk. If you would invest 854.00 in Municipal Bond Portfolio on August 25, 2024 and sell it today you would earn a total of 4.00 from holding Municipal Bond Portfolio or generate 0.47% 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 Cap Value
Performance |
| Timeline |
| Municipal Bond Portfolio |
| Large Cap Value |
Municipal Bond and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Large Cap
The main advantage of trading using opposite Municipal Bond and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Large Cap 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 Cap will offset losses from the drop in Large Cap's long position.| Municipal Bond vs. Vanguard Intermediate Term Tax Exempt | Municipal Bond vs. Vanguard Intermediate Term Tax Exempt | Municipal Bond vs. Tax Exempt Bond | Municipal Bond vs. Tax Exempt Bond |
| Large Cap vs. Aqr Large Cap | Large Cap vs. Tax Managed Large Cap | Large Cap vs. Alternative Asset Allocation | Large Cap vs. Qs Large Cap |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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