Correlation Between Short-term Government and High-yield Municipal
Can any of the company-specific risk be diversified away by investing in both Short-term Government and High-yield 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 Short-term Government and High-yield Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Government Fund and High Yield Municipal Fund, you can compare the effects of market volatilities on Short-term Government and High-yield 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 Short-term Government with a short position of High-yield Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and High-yield Municipal.
Diversification Opportunities for Short-term Government and High-yield Municipal
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short-term and High-yield is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal and Short-term Government 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 Short Term Government Fund are associated (or correlated) with High-yield Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of Short-term Government i.e., Short-term Government and High-yield Municipal go up and down completely randomly.
Pair Corralation between Short-term Government and High-yield Municipal
Assuming the 90 days horizon Short Term Government Fund is expected to under-perform the High-yield Municipal. But the mutual fund apears to be less risky and, when comparing its historical volatility, Short Term Government Fund is 2.53 times less risky than High-yield Municipal. The mutual fund trades about -0.05 of its potential returns per unit of risk. The High Yield Municipal Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 888.00 in High Yield Municipal Fund on August 23, 2024 and sell it today you would earn a total of 8.00 from holding High Yield Municipal Fund or generate 0.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. High Yield Municipal Fund
Performance |
| Timeline |
| Short Term Government |
| High Yield Municipal |
Short-term Government and High-yield Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and High-yield Municipal
The main advantage of trading using opposite Short-term Government and High-yield Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government position performs unexpectedly, High-yield 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 High-yield Municipal will offset losses from the drop in High-yield Municipal's long position.| Short-term Government vs. Vy Columbia Small | Short-term Government vs. Artisan Small Cap | Short-term Government vs. Vanguard Explorer Value | Short-term Government vs. Siit Small Mid |
| High-yield Municipal vs. High Yield Fund Investor | High-yield Municipal vs. Intermediate Term Tax Free Bond | High-yield Municipal vs. California High Yield Municipal | High-yield Municipal vs. T Rowe Price |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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