Correlation Between Stellar and Short-term Municipal
Can any of the company-specific risk be diversified away by investing in both Stellar 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 Stellar 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 Stellar and Short Term Municipal Bond, you can compare the effects of market volatilities on Stellar 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 Stellar with a short position of Short-term Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stellar and Short-term Municipal.
Diversification Opportunities for Stellar and Short-term Municipal
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Stellar and Short-term is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Stellar 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 Stellar 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 Stellar 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 Stellar i.e., Stellar and Short-term Municipal go up and down completely randomly.
Pair Corralation between Stellar and Short-term Municipal
Assuming the 90 days trading horizon Stellar is expected to generate 86.0 times more return on investment than Short-term Municipal. However, Stellar is 86.0 times more volatile than Short Term Municipal Bond. It trades about 0.1 of its potential returns per unit of risk. Short Term Municipal Bond is currently generating about 0.13 per unit of risk. If you would invest 8.60 in Stellar on November 2, 2024 and sell it today you would earn a total of 34.40 from holding Stellar or generate 400.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 60.12% |
| Values | Daily Returns |
Stellar vs. Short Term Municipal Bond
Performance |
| Timeline |
| Stellar |
| Short Term Municipal |
Stellar and Short-term Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stellar and Short-term Municipal
The main advantage of trading using opposite Stellar and Short-term Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stellar 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.The idea behind Stellar and Short Term Municipal Bond pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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