Correlation Between New York and Ab Municipal

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

By analyzing existing cross correlation between New York Municipal and Ab Municipal Bond, you can compare the effects of market volatilities on New York and Ab 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 New York with a short position of Ab Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of New York and Ab Municipal.

Diversification Opportunities for New York and Ab Municipal

0.81

Correlation Coefficient

New York  Ab Municipal

Very poor diversification

The 3 months correlation between New and AUNCX is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding New York Municipal and Ab Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Municipal Bond and New York 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 New York Municipal are associated (or correlated) with Ab Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Municipal Bond has no effect on the direction of New York i.e., New York and Ab Municipal go up and down completely randomly.

Pair Corralation between New York and Ab Municipal

Assuming the 90 days horizon New York is expected to generate 1.23 times less return on investment than Ab Municipal. But when comparing it to its historical volatility, New York Municipal is 1.09 times less risky than Ab Municipal. It trades about 0.02 of its potential returns per unit of risk. Ab Municipal Bond is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,068  in Ab Municipal Bond on October 23, 2024 and sell it today you would earn a total of  3.00  from holding Ab Municipal Bond or generate 0.28% return on investment over 90 days.

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

New York Municipal  vs.  Ab Municipal Bond

New York Municipal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New York Municipal are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, New York is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ab Municipal Bond

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Municipal Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Ab Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New York and Ab Municipal

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

The idea behind New York Municipal and Ab 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.