Correlation Between Core Plus and High-yield Municipal
Can any of the company-specific risk be diversified away by investing in both Core Plus 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 Core Plus 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 Core Plus Income and High Yield Municipal Fund, you can compare the effects of market volatilities on Core Plus 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 Core Plus with a short position of High-yield Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Plus and High-yield Municipal.
Diversification Opportunities for Core Plus and High-yield Municipal
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Core and High-yield is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Core Plus Income 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 Core Plus 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 Core Plus Income 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 Core Plus i.e., Core Plus and High-yield Municipal go up and down completely randomly.
Pair Corralation between Core Plus and High-yield Municipal
Assuming the 90 days horizon Core Plus is expected to generate 1.79 times less return on investment than High-yield Municipal. But when comparing it to its historical volatility, Core Plus Income is 1.13 times less risky than High-yield Municipal. It trades about 0.09 of its potential returns per unit of risk. High Yield Municipal Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 891.00 in High Yield Municipal Fund on September 1, 2024 and sell it today you would earn a total of 10.00 from holding High Yield Municipal Fund or generate 1.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Core Plus Income vs. High Yield Municipal Fund
Performance |
| Timeline |
| Core Plus Income |
| High Yield Municipal |
Core Plus and High-yield Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Core Plus and High-yield Municipal
The main advantage of trading using opposite Core Plus and High-yield Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core Plus 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.| Core Plus vs. Artisan High Income | Core Plus vs. T Rowe Price | Core Plus vs. Dodge Global Bond | Core Plus vs. Performance Trust Strategic |
| 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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