Correlation Between Ishares Municipal and Sierra Tactical

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

Diversification Opportunities for Ishares Municipal and Sierra Tactical

0.3

Correlation Coefficient

Ishares Municipal  Sierra Tactical

Weak diversification

The 3 months correlation between Ishares and Sierra is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Sierra Tactical Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Tactical Risk 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 Sierra Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Tactical Risk has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Sierra Tactical go up and down completely randomly.

Pair Corralation between Ishares Municipal and Sierra Tactical

Assuming the 90 days horizon Ishares Municipal Bond is expected to generate 0.4 times more return on investment than Sierra Tactical. However, Ishares Municipal Bond is 2.47 times less risky than Sierra Tactical. It trades about -0.05 of its potential returns per unit of risk. Sierra Tactical Risk is currently generating about -0.04 per unit of risk. If you would invest  1,089  in Ishares Municipal Bond on December 29, 2024 and sell it today you would lose (8.00) from holding Ishares Municipal Bond or give up 0.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Ishares Municipal Bond  vs.  Sierra Tactical Risk

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.

Sierra Tactical Risk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sierra Tactical Risk has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sierra Tactical 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 Sierra Tactical

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

The idea behind Ishares Municipal Bond and Sierra Tactical Risk 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.