Correlation Between Morningstar Municipal and Dfa Municipal

Can any of the company-specific risk be diversified away by investing in both Morningstar Municipal and Dfa 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 Dfa 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 Dfa Municipal Real, you can compare the effects of market volatilities on Morningstar Municipal and Dfa 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 Dfa Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Municipal and Dfa Municipal.

Diversification Opportunities for Morningstar Municipal and Dfa Municipal

0.38

Correlation Coefficient

Morningstar Municipal  Dfa Municipal

Weak diversification

The 3 months correlation between Morningstar and Dfa is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Dfa Municipal Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Municipal Real 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 Dfa Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Municipal Real has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Dfa Municipal go up and down completely randomly.

Pair Corralation between Morningstar Municipal and Dfa Municipal

Assuming the 90 days horizon Morningstar Municipal Bond is expected to under-perform the Dfa Municipal. In addition to that, Morningstar Municipal is 3.62 times more volatile than Dfa Municipal Real. It trades about -0.03 of its total potential returns per unit of risk. Dfa Municipal Real is currently generating about 0.41 per unit of volatility. If you would invest  1,068  in Dfa Municipal Real on December 30, 2024 and sell it today you would earn a total of  14.00  from holding Dfa Municipal Real or generate 1.31% return on investment over 90 days.

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

Morningstar Municipal Bond  vs.  Dfa Municipal Real

Morningstar Municipal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morningstar Municipal Bond has generated negative risk-adjusted returns adding no value to fund investors. 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.

Dfa Municipal Real

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Municipal Real are ranked lower than 32 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dfa 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 Dfa Municipal

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

The idea behind Morningstar Municipal Bond and Dfa Municipal Real 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.