Correlation Between Ishares Municipal and Cardinal Small

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

Diversification Opportunities for Ishares Municipal and Cardinal Small

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Correlation Coefficient

Ishares Municipal  Cardinal Small

Pay attention - limited upside

The 3 months correlation between Ishares and Cardinal is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Cardinal Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Small Cap 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 Cardinal Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Small Cap has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Cardinal Small go up and down completely randomly.

Pair Corralation between Ishares Municipal and Cardinal Small

Assuming the 90 days horizon Ishares Municipal is expected to generate 2.94 times less return on investment than Cardinal Small. But when comparing it to its historical volatility, Ishares Municipal Bond is 4.35 times less risky than Cardinal Small. It trades about 0.03 of its potential returns per unit of risk. Cardinal Small Cap is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,313  in Cardinal Small Cap on October 11, 2024 and sell it today you would earn a total of  131.00  from holding Cardinal Small Cap or generate 9.98% return on investment over 90 days.

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

Ishares Municipal Bond  vs.  Cardinal Small Cap

Ishares Municipal Bond

Risk-Adjusted Performance

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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 basic indicators, Ishares Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cardinal Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Ishares Municipal Bond and Cardinal Small Cap 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.