Correlation Between Ultra-short Term and Municipal Bond
Can any of the company-specific risk be diversified away by investing in both Ultra-short Term 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 Ultra-short Term and Municipal Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ultra Short Term Fixed and Municipal Bond Fund, you can compare the effects of market volatilities on Ultra-short Term 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 Ultra-short Term with a short position of Municipal Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra-short Term and Municipal Bond.
Diversification Opportunities for Ultra-short Term and Municipal Bond
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ultra-short and Municipal is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Fixed and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond and Ultra-short Term 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 Ultra Short Term Fixed 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 has no effect on the direction of Ultra-short Term i.e., Ultra-short Term and Municipal Bond go up and down completely randomly.
Pair Corralation between Ultra-short Term and Municipal Bond
Assuming the 90 days horizon Ultra-short Term is expected to generate 1.21 times less return on investment than Municipal Bond. But when comparing it to its historical volatility, Ultra Short Term Fixed is 6.36 times less risky than Municipal Bond. It trades about 0.53 of its potential returns per unit of risk. Municipal Bond Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 974.00 in Municipal Bond Fund on August 26, 2024 and sell it today you would earn a total of 6.00 from holding Municipal Bond Fund or generate 0.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ultra Short Term Fixed vs. Municipal Bond Fund
Performance |
| Timeline |
| Ultra Short Term |
| Municipal Bond |
Ultra-short Term and Municipal Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ultra-short Term and Municipal Bond
The main advantage of trading using opposite Ultra-short Term and Municipal Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra-short Term 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.| Ultra-short Term vs. Short Term Government Fund | Ultra-short Term vs. Blackrock Government Bond | Ultra-short Term vs. Us Government Securities | Ultra-short Term vs. Inverse Government Long |
| Municipal Bond vs. Ab Select Longshort | Municipal Bond vs. Ultra Short Term Fixed | Municipal Bond vs. Quantitative Longshort Equity | Municipal Bond vs. Jhancock Short Duration |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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