Correlation Between First American and Blackrock Muniholdings

Can any of the company-specific risk be diversified away by investing in both First American and Blackrock Muniholdings 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 First American and Blackrock Muniholdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First American Funds and Blackrock Muniholdings New, you can compare the effects of market volatilities on First American and Blackrock Muniholdings 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 First American with a short position of Blackrock Muniholdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of First American and Blackrock Muniholdings.

Diversification Opportunities for First American and Blackrock Muniholdings

-0.36

Correlation Coefficient

First American  Blackrock Muniholdings

Very good diversification

The 3 months correlation between First and Blackrock is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Blackrock Muniholdings New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackrock Muniholdings and First American 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 First American Funds are associated (or correlated) with Blackrock Muniholdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackrock Muniholdings has no effect on the direction of First American i.e., First American and Blackrock Muniholdings go up and down completely randomly.

Pair Corralation between First American and Blackrock Muniholdings

Assuming the 90 days horizon First American Funds is expected to generate 0.27 times more return on investment than Blackrock Muniholdings. However, First American Funds is 3.65 times less risky than Blackrock Muniholdings. It trades about 0.13 of its potential returns per unit of risk. Blackrock Muniholdings New is currently generating about -0.14 per unit of risk. If you would invest  99.00  in First American Funds on September 26, 2024 and sell it today you would earn a total of  1.00  from holding First American Funds or generate 1.01% return on investment over 90 days.

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

First American Funds  vs.  Blackrock Muniholdings New

First American Funds

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First American Funds are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Blackrock Muniholdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First American and Blackrock Muniholdings

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

The idea behind First American Funds and Blackrock Muniholdings New 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.