Correlation Between Government Securities and Maine Municipal
Can any of the company-specific risk be diversified away by investing in both Government Securities and Maine 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 Government Securities and Maine Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Government Securities Fund and Maine Municipal Fund, you can compare the effects of market volatilities on Government Securities and Maine 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 Government Securities with a short position of Maine Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Maine Municipal.
Diversification Opportunities for Government Securities and Maine Municipal
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Government and Maine is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Maine Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maine Municipal and Government Securities 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 Government Securities Fund are associated (or correlated) with Maine Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maine Municipal has no effect on the direction of Government Securities i.e., Government Securities and Maine Municipal go up and down completely randomly.
Pair Corralation between Government Securities and Maine Municipal
Assuming the 90 days horizon Government Securities is expected to generate 2.15 times less return on investment than Maine Municipal. But when comparing it to its historical volatility, Government Securities Fund is 1.19 times less risky than Maine Municipal. It trades about 0.12 of its potential returns per unit of risk. Maine Municipal Fund is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 946.00 in Maine Municipal Fund on September 3, 2024 and sell it today you would earn a total of 14.00 from holding Maine Municipal Fund or generate 1.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Securities Fund vs. Maine Municipal Fund
Performance |
| Timeline |
| Government Securities |
| Maine Municipal |
Government Securities and Maine Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Maine Municipal
The main advantage of trading using opposite Government Securities and Maine Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities position performs unexpectedly, Maine 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 Maine Municipal will offset losses from the drop in Maine Municipal's long position.| Government Securities vs. T Rowe Price | Government Securities vs. T Rowe Price | Government Securities vs. T Rowe Price | Government Securities vs. T Rowe Price |
| Maine Municipal vs. Wt Mutual Fund | Maine Municipal vs. Janus Investment | Maine Municipal vs. John Hancock Money | Maine Municipal vs. Elfun Government Money |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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