Correlation Between Morningstar Defensive and Ishares Municipal

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

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

Diversification Opportunities for Morningstar Defensive and Ishares Municipal

0.65

Correlation Coefficient

Morningstar Defensive  Ishares Municipal

Poor diversification

The 3 months correlation between Morningstar and Ishares is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond 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 Morningstar Defensive 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 Morningstar Defensive Bond 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 Morningstar Defensive i.e., Morningstar Defensive and Ishares Municipal go up and down completely randomly.

Pair Corralation between Morningstar Defensive and Ishares Municipal

Assuming the 90 days horizon Morningstar Defensive Bond is expected to under-perform the Ishares Municipal. But the mutual fund apears to be less risky and, when comparing its historical volatility, Morningstar Defensive Bond is 1.83 times less risky than Ishares Municipal. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Ishares Municipal Bond is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,113  in Ishares Municipal Bond on September 13, 2024 and sell it today you would earn a total of  5.00  from holding Ishares Municipal Bond or generate 0.45% return on investment over 90 days.

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

Morningstar Defensive Bond  vs.  Ishares Municipal Bond

Morningstar Defensive

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ishares Municipal Bond

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ishares Municipal Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ishares Municipal is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morningstar Defensive and Ishares Municipal

The main advantage of trading using opposite Morningstar Defensive and Ishares Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Defensive 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 Morningstar Defensive Bond 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.