Correlation Between Government Securities and Municipal Bond
Can any of the company-specific risk be diversified away by investing in both Government Securities 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 Government Securities and Municipal Bond 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 Municipal Bond Fund, you can compare the effects of market volatilities on Government Securities 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 Government Securities with a short position of Municipal Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Municipal Bond.
Diversification Opportunities for Government Securities and Municipal Bond
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Government and Municipal is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond 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 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 Government Securities i.e., Government Securities and Municipal Bond go up and down completely randomly.
Pair Corralation between Government Securities and Municipal Bond
Assuming the 90 days horizon Government Securities Fund is expected to generate 1.4 times more return on investment than Municipal Bond. However, Government Securities is 1.4 times more volatile than Municipal Bond Fund. It trades about 0.31 of its potential returns per unit of risk. Municipal Bond Fund is currently generating about 0.13 per unit of risk. If you would invest 860.00 in Government Securities Fund on December 11, 2024 and sell it today you would earn a total of 28.00 from holding Government Securities Fund or generate 3.26% 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. Municipal Bond Fund
Performance |
| Timeline |
| Government Securities |
| Municipal Bond |
Government Securities and Municipal Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Municipal Bond
The main advantage of trading using opposite Government Securities and Municipal Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities 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.| Government Securities vs. Ab Bond Inflation | Government Securities vs. Ab Bond Inflation | Government Securities vs. Rbc Bluebay Global | Government Securities vs. Artisan High Income |
| Municipal Bond vs. Multisector Bond Sma | Municipal Bond vs. Rbc Ultra Short Fixed | Municipal Bond vs. Intermediate Term Bond Fund | Municipal Bond vs. Old Westbury Fixed |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
Other Complementary Tools
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Fundamental Analysis View fundamental data based on most recent published financial statements |