Correlation Between American High-income and Sparta Capital

Can any of the company-specific risk be diversified away by investing in both American High-income and Sparta Capital 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 American High-income and Sparta Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American High Income Municipal and Sparta Capital, you can compare the effects of market volatilities on American High-income and Sparta Capital 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 American High-income with a short position of Sparta Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Sparta Capital.

Diversification Opportunities for American High-income and Sparta Capital

0.22

Correlation Coefficient

American High-income  Sparta Capital

Modest diversification

The 3 months correlation between American and Sparta is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding American High Income Municipal and Sparta Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparta Capital and American High-income 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 American High Income Municipal are associated (or correlated) with Sparta Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparta Capital has no effect on the direction of American High-income i.e., American High-income and Sparta Capital go up and down completely randomly.

Pair Corralation between American High-income and Sparta Capital

Assuming the 90 days horizon American High-income is expected to generate 116.0 times less return on investment than Sparta Capital. But when comparing it to its historical volatility, American High Income Municipal is 71.78 times less risky than Sparta Capital. It trades about 0.01 of its potential returns per unit of risk. Sparta Capital is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.03  in Sparta Capital on December 30, 2024 and sell it today you would lose (0.92) from holding Sparta Capital or give up 89.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

American High Income Municipal  vs.  Sparta Capital

American High Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days American High Income Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, American High-income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sparta Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sparta Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Sparta Capital may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American High-income and Sparta Capital

The main advantage of trading using opposite American High-income and Sparta Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American High-income position performs unexpectedly, Sparta Capital 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 Sparta Capital will offset losses from the drop in Sparta Capital's long position.

The idea behind American High Income Municipal and Sparta Capital 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.