Correlation Between DWS Municipal and Nuveen Preferred

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

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

Diversification Opportunities for DWS Municipal and Nuveen Preferred

0.67

Correlation Coefficient

DWS Municipal  Nuveen Preferred

Poor diversification

The 3 months correlation between DWS and Nuveen is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding DWS Municipal Income and Nuveen Preferred and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Preferred and DWS 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 DWS Municipal Income are associated (or correlated) with Nuveen Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Preferred has no effect on the direction of DWS Municipal i.e., DWS Municipal and Nuveen Preferred go up and down completely randomly.

Pair Corralation between DWS Municipal and Nuveen Preferred

Considering the 90-day investment horizon DWS Municipal Income is expected to generate 0.91 times more return on investment than Nuveen Preferred. However, DWS Municipal Income is 1.1 times less risky than Nuveen Preferred. It trades about 0.08 of its potential returns per unit of risk. Nuveen Preferred and is currently generating about 0.07 per unit of risk. If you would invest  766.00  in DWS Municipal Income on December 2, 2024 and sell it today you would earn a total of  205.00  from holding DWS Municipal Income or generate 26.76% return on investment over 90 days.

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

DWS Municipal Income  vs.  Nuveen Preferred and

DWS Municipal Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days DWS Municipal Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DWS Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nuveen Preferred

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nuveen Preferred and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Nuveen Preferred is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with DWS Municipal and Nuveen Preferred

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

The idea behind DWS Municipal Income and Nuveen Preferred and 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.