Correlation Between Ishares Municipal and California High-yield

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

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

Diversification Opportunities for Ishares Municipal and California High-yield

0.99

Correlation Coefficient

Ishares Municipal  California High-yield

No risk reduction

The 3 months correlation between Ishares and California is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and California High Yield Municipa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California High Yield and Ishares Municipal 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 Ishares Municipal Bond are associated (or correlated) with California High-yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California High Yield has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and California High-yield go up and down completely randomly.

Pair Corralation between Ishares Municipal and California High-yield

Assuming the 90 days horizon Ishares Municipal is expected to generate 1.04 times less return on investment than California High-yield. But when comparing it to its historical volatility, Ishares Municipal Bond is 1.1 times less risky than California High-yield. It trades about 0.08 of its potential returns per unit of risk. California High Yield Municipal is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  983.00  in California High Yield Municipal on September 3, 2024 and sell it today you would earn a total of  12.00  from holding California High Yield Municipal or generate 1.22% return on investment over 90 days.

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

Ishares Municipal Bond  vs.  California High Yield Municipa

Ishares Municipal Bond

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ishares Municipal Bond are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Ishares Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

California High Yield

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in California High Yield Municipal are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, California High-yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ishares Municipal and California High-yield

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

The idea behind Ishares Municipal Bond and California High Yield Municipal 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.