Correlation Between Short Term and California Bond
Can any of the company-specific risk be diversified away by investing in both Short Term and California 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 Short Term and California Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Municipal Bond and California Bond Fund, you can compare the effects of market volatilities on Short Term and California 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 Short Term with a short position of California Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Term and California Bond.
Diversification Opportunities for Short Term and California Bond
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Short and California is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Municipal Bond and California Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Bond and Short Term 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 Short Term Municipal Bond are associated (or correlated) with California Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Bond has no effect on the direction of Short Term i.e., Short Term and California Bond go up and down completely randomly.
Pair Corralation between Short Term and California Bond
Assuming the 90 days horizon Short Term is expected to generate 4.21 times less return on investment than California Bond. But when comparing it to its historical volatility, Short Term Municipal Bond is 1.77 times less risky than California Bond. It trades about 0.24 of its potential returns per unit of risk. California Bond Fund is currently generating about 0.58 of returns per unit of risk over similar time horizon. If you would invest 1,039 in California Bond Fund on September 12, 2024 and sell it today you would earn a total of 13.00 from holding California Bond Fund or generate 1.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Short Term Municipal Bond vs. California Bond Fund
Performance |
| Timeline |
| Short Term Municipal |
| California Bond |
Short Term and California Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Term and California Bond
The main advantage of trading using opposite Short Term and California Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Term position performs unexpectedly, California 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 California Bond will offset losses from the drop in California Bond's long position.| Short Term vs. Gamco Global Telecommunications | Short Term vs. Bbh Intermediate Municipal | Short Term vs. Pace Municipal Fixed | Short Term vs. Oklahoma Municipal Fund |
| California Bond vs. Vanguard California Long Term | California Bond vs. Vanguard California Long Term | California Bond vs. SCOR PK | California Bond vs. Morningstar Unconstrained Allocation |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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