Correlation Between Flow Capital and DWS Municipal

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

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

Diversification Opportunities for Flow Capital and DWS Municipal

-0.07

Correlation Coefficient

Flow Capital  DWS Municipal

Good diversification

The 3 months correlation between Flow and DWS is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Flow Capital Corp and DWS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DWS Municipal Income and Flow Capital 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 Flow Capital Corp are associated (or correlated) with DWS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DWS Municipal Income has no effect on the direction of Flow Capital i.e., Flow Capital and DWS Municipal go up and down completely randomly.

Pair Corralation between Flow Capital and DWS Municipal

Assuming the 90 days horizon Flow Capital Corp is expected to under-perform the DWS Municipal. But the pink sheet apears to be less risky and, when comparing its historical volatility, Flow Capital Corp is 2.94 times less risky than DWS Municipal. The pink sheet trades about -0.12 of its potential returns per unit of risk. The DWS Municipal Income is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  984.00  in DWS Municipal Income on September 17, 2024 and sell it today you would earn a total of  1.00  from holding DWS Municipal Income or generate 0.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Flow Capital Corp  vs.  DWS Municipal Income

Flow Capital Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flow Capital Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Flow Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

DWS Municipal Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DWS Municipal Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DWS Municipal is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Flow Capital and DWS Municipal

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

The idea behind Flow Capital Corp and DWS Municipal Income 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.