Correlation Between Morningstar Municipal and Growth Portfolio

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

Diversification Opportunities for Morningstar Municipal and Growth Portfolio

0.11

Correlation Coefficient

Morningstar Municipal  Growth Portfolio

Average diversification

The 3 months correlation between Morningstar and Growth is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Growth Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Portfolio Class 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 Growth Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Portfolio Class has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Growth Portfolio go up and down completely randomly.

Pair Corralation between Morningstar Municipal and Growth Portfolio

Assuming the 90 days horizon Morningstar Municipal Bond is expected to generate 0.08 times more return on investment than Growth Portfolio. However, Morningstar Municipal Bond is 12.24 times less risky than Growth Portfolio. It trades about -0.03 of its potential returns per unit of risk. Growth Portfolio Class is currently generating about -0.07 per unit of risk. If you would invest  988.00  in Morningstar Municipal Bond on December 30, 2024 and sell it today you would lose (3.00) from holding Morningstar Municipal Bond or give up 0.3% of portfolio value over 90 days.

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

Morningstar Municipal Bond  vs.  Growth Portfolio Class

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.

Growth Portfolio Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Growth Portfolio Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Morningstar Municipal and Growth Portfolio

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

The idea behind Morningstar Municipal Bond and Growth Portfolio Class 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.