Correlation Between Ishares Municipal and Laudus International

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

Diversification Opportunities for Ishares Municipal and Laudus International

0.54

Correlation Coefficient

Ishares Municipal  Laudus International

Very weak diversification

The 3 months correlation between Ishares and Laudus is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Laudus International Marketmas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laudus International 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 Laudus International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laudus International has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Laudus International go up and down completely randomly.

Pair Corralation between Ishares Municipal and Laudus International

Assuming the 90 days horizon Ishares Municipal is expected to generate 1.54 times less return on investment than Laudus International. But when comparing it to its historical volatility, Ishares Municipal Bond is 3.61 times less risky than Laudus International. It trades about 0.03 of its potential returns per unit of risk. Laudus International Marketmasters is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,913  in Laudus International Marketmasters on October 9, 2024 and sell it today you would earn a total of  87.00  from holding Laudus International Marketmasters or generate 4.55% 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.  Laudus International Marketmas

Ishares Municipal Bond

Risk-Adjusted Performance

0 of 100

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.

Laudus International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Laudus International Marketmasters has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ishares Municipal and Laudus International

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

The idea behind Ishares Municipal Bond and Laudus International Marketmasters 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.