Correlation Between Ishares Municipal and Goldman Sachs

Can any of the company-specific risk be diversified away by investing in both Ishares Municipal and Goldman Sachs 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 Goldman Sachs 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 Goldman Sachs Government, you can compare the effects of market volatilities on Ishares Municipal and Goldman Sachs 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 Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ishares Municipal and Goldman Sachs.

Diversification Opportunities for Ishares Municipal and Goldman Sachs

0.51

Correlation Coefficient

Ishares Municipal  Goldman Sachs

Very weak diversification

The 3 months correlation between Ishares and Goldman is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Goldman Sachs Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Government 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Government has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Goldman Sachs go up and down completely randomly.

Pair Corralation between Ishares Municipal and Goldman Sachs

Assuming the 90 days horizon Ishares Municipal Bond is expected to under-perform the Goldman Sachs. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ishares Municipal Bond is 1.28 times less risky than Goldman Sachs. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Goldman Sachs Government is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,270  in Goldman Sachs Government on December 29, 2024 and sell it today you would earn a total of  31.00  from holding Goldman Sachs Government or generate 2.44% return on investment over 90 days.

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

Ishares Municipal Bond  vs.  Goldman Sachs Government

Ishares Municipal Bond

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ishares Municipal Bond has generated negative risk-adjusted returns adding no value to fund investors. 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.

Goldman Sachs Government

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Government are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Goldman Sachs 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 Goldman Sachs

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

The idea behind Ishares Municipal Bond and Goldman Sachs Government 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.