Correlation Between Century Small and Nuveen Municipal

Can any of the company-specific risk be diversified away by investing in both Century Small and Nuveen Municipal 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 Century Small and Nuveen Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Century Small Cap and Nuveen Municipal Credit, you can compare the effects of market volatilities on Century Small and Nuveen Municipal 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 Century Small with a short position of Nuveen Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Century Small and Nuveen Municipal.

Diversification Opportunities for Century Small and Nuveen Municipal

-0.25

Correlation Coefficient

Century Small  Nuveen Municipal

Very good diversification

The 3 months correlation between Century and Nuveen is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Century Small Cap and Nuveen Municipal Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Municipal Credit and Century Small 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 Century Small Cap are associated (or correlated) with Nuveen Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Municipal Credit has no effect on the direction of Century Small i.e., Century Small and Nuveen Municipal go up and down completely randomly.

Pair Corralation between Century Small and Nuveen Municipal

Assuming the 90 days horizon Century Small Cap is expected to generate 2.51 times more return on investment than Nuveen Municipal. However, Century Small is 2.51 times more volatile than Nuveen Municipal Credit. It trades about 0.13 of its potential returns per unit of risk. Nuveen Municipal Credit is currently generating about -0.04 per unit of risk. If you would invest  3,903  in Century Small Cap on September 14, 2024 and sell it today you would earn a total of  363.00  from holding Century Small Cap or generate 9.3% return on investment over 90 days.

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

Century Small Cap  vs.  Nuveen Municipal Credit

Century Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Century Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Century Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nuveen Municipal Credit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuveen Municipal Credit has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Nuveen Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Century Small and Nuveen Municipal

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

The idea behind Century Small Cap and Nuveen Municipal Credit 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.