Correlation Between Us Government and Diversified Municipal
Can any of the company-specific risk be diversified away by investing in both Us Government and Diversified 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 Us Government and Diversified Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Government Securities and Diversified Municipal Portfolio, you can compare the effects of market volatilities on Us Government and Diversified 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 Us Government with a short position of Diversified Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Diversified Municipal.
Diversification Opportunities for Us Government and Diversified Municipal
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between USGFX and Diversified is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Diversified Municipal Portfoli in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Municipal and Us 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 Us Government Securities are associated (or correlated) with Diversified Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Municipal has no effect on the direction of Us Government i.e., Us Government and Diversified Municipal go up and down completely randomly.
Pair Corralation between Us Government and Diversified Municipal
Assuming the 90 days horizon Us Government is expected to generate 1.4 times less return on investment than Diversified Municipal. In addition to that, Us Government is 3.04 times more volatile than Diversified Municipal Portfolio. It trades about 0.02 of its total potential returns per unit of risk. Diversified Municipal Portfolio is currently generating about 0.09 per unit of volatility. If you would invest 1,317 in Diversified Municipal Portfolio on September 1, 2024 and sell it today you would earn a total of 81.00 from holding Diversified Municipal Portfolio or generate 6.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.78% |
| Values | Daily Returns |
Us Government Securities vs. Diversified Municipal Portfoli
Performance |
| Timeline |
| Us Government Securities |
| Diversified Municipal |
Us Government and Diversified Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Government and Diversified Municipal
The main advantage of trading using opposite Us Government and Diversified Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government position performs unexpectedly, Diversified 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 Diversified Municipal will offset losses from the drop in Diversified Municipal's long position.| Us Government vs. Government Securities Fund | Us Government vs. John Hancock Government | Us Government vs. Short Term Government Fund | Us Government vs. Blackrock Government Bond |
| Diversified Municipal vs. Ab Global E | Diversified Municipal vs. Ab Global E | Diversified Municipal vs. Ab Global E | Diversified Municipal vs. Ab Minnesota Portfolio |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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