Correlation Between Ishares Municipal and Municipal Bond

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

Diversification Opportunities for Ishares Municipal and Municipal Bond

0.98

Correlation Coefficient

Ishares Municipal  Municipal Bond

Almost no diversification

The 3 months correlation between Ishares and Municipal is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond 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 Municipal Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Municipal Bond has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Municipal Bond go up and down completely randomly.

Pair Corralation between Ishares Municipal and Municipal Bond

Assuming the 90 days horizon Ishares Municipal is expected to generate 1.33 times less return on investment than Municipal Bond. In addition to that, Ishares Municipal is 1.14 times more volatile than Municipal Bond Fund. It trades about 0.04 of its total potential returns per unit of risk. Municipal Bond Fund is currently generating about 0.05 per unit of volatility. If you would invest  922.00  in Municipal Bond Fund on October 4, 2024 and sell it today you would earn a total of  52.00  from holding Municipal Bond Fund or generate 5.64% 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.  Municipal Bond Fund

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.

Municipal Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Municipal Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Municipal Bond 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 Municipal Bond

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

The idea behind Ishares Municipal Bond and Municipal Bond Fund 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.