Correlation Between Municipal Bond and Short-term Municipal
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Short-term 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 Municipal Bond and Short-term Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Municipal Bond Fund and Short Term Municipal Bond, you can compare the effects of market volatilities on Municipal Bond and Short-term 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 Municipal Bond with a short position of Short-term Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Short-term Municipal.
Diversification Opportunities for Municipal Bond and Short-term Municipal
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Municipal and Short-term is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Fund and Short Term Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Municipal and Municipal Bond 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 Municipal Bond Fund are associated (or correlated) with Short-term Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Municipal has no effect on the direction of Municipal Bond i.e., Municipal Bond and Short-term Municipal go up and down completely randomly.
Pair Corralation between Municipal Bond and Short-term Municipal
Assuming the 90 days horizon Municipal Bond Fund is expected to generate 2.67 times more return on investment than Short-term Municipal. However, Municipal Bond is 2.67 times more volatile than Short Term Municipal Bond. It trades about 0.23 of its potential returns per unit of risk. Short Term Municipal Bond is currently generating about 0.22 per unit of risk. If you would invest 972.00 in Municipal Bond Fund on August 30, 2024 and sell it today you would earn a total of 14.00 from holding Municipal Bond Fund or generate 1.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Municipal Bond Fund vs. Short Term Municipal Bond
Performance |
| Timeline |
| Municipal Bond |
| Short Term Municipal |
Municipal Bond and Short-term Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Short-term Municipal
The main advantage of trading using opposite Municipal Bond and Short-term Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Short-term 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 Short-term Municipal will offset losses from the drop in Short-term Municipal's long position.| Municipal Bond vs. Dunham Porategovernment Bond | Municipal Bond vs. Government Securities Fund | Municipal Bond vs. Short Term Government Fund | Municipal Bond vs. Blackrock Government Bond |
| Short-term Municipal vs. Short Term Government Fund | Short-term Municipal vs. Us Government Plus | Short-term Municipal vs. Us Government Securities | Short-term Municipal vs. Dunham Porategovernment Bond |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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