Correlation Between Morningstar Municipal and Ab Municipal

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

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

Diversification Opportunities for Morningstar Municipal and Ab Municipal

0.85

Correlation Coefficient

Morningstar Municipal  Ab Municipal

Very poor diversification

The 3 months correlation between Morningstar and AUNTX is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Ab Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Municipal Bond and Morningstar 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 Morningstar Municipal Bond are associated (or correlated) with Ab Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Municipal Bond has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Ab Municipal go up and down completely randomly.

Pair Corralation between Morningstar Municipal and Ab Municipal

Assuming the 90 days horizon Morningstar Municipal is expected to generate 2.52 times less return on investment than Ab Municipal. In addition to that, Morningstar Municipal is 1.14 times more volatile than Ab Municipal Bond. It trades about 0.07 of its total potential returns per unit of risk. Ab Municipal Bond is currently generating about 0.2 per unit of volatility. If you would invest  1,051  in Ab Municipal Bond on December 23, 2024 and sell it today you would earn a total of  19.00  from holding Ab Municipal Bond or generate 1.81% return on investment over 90 days.

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

Morningstar Municipal Bond  vs.  Ab Municipal Bond

Morningstar Municipal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Municipal Bond are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Morningstar Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ab Municipal Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Municipal Bond are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ab 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 Morningstar Municipal and Ab Municipal

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

The idea behind Morningstar Municipal Bond and Ab 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.