Correlation Between Materials Portfolio and Ishares Municipal

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

By analyzing existing cross correlation between Materials Portfolio Fidelity and Ishares Municipal Bond, you can compare the effects of market volatilities on Materials Portfolio and Ishares 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 Materials Portfolio with a short position of Ishares Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Ishares Municipal.

Diversification Opportunities for Materials Portfolio and Ishares Municipal

0.49

Correlation Coefficient

Materials Portfolio  Ishares Municipal

Very weak diversification

The 3 months correlation between Materials and Ishares is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Ishares Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ishares Municipal Bond and Materials Portfolio 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 Materials Portfolio Fidelity are associated (or correlated) with Ishares Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ishares Municipal Bond has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Ishares Municipal go up and down completely randomly.

Pair Corralation between Materials Portfolio and Ishares Municipal

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the Ishares Municipal. In addition to that, Materials Portfolio is 6.94 times more volatile than Ishares Municipal Bond. It trades about -0.5 of its total potential returns per unit of risk. Ishares Municipal Bond is currently generating about -0.34 per unit of volatility. If you would invest  1,120  in Ishares Municipal Bond on October 4, 2024 and sell it today you would lose (21.00) from holding Ishares Municipal Bond or give up 1.87% of portfolio value over 90 days.

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

Materials Portfolio Fidelity  vs.  Ishares Municipal Bond

Materials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Portfolio Fidelity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

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.

Pair Trading with Materials Portfolio and Ishares Municipal

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

The idea behind Materials Portfolio Fidelity and Ishares Municipal Bond 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.