Correlation Between Morningstar Municipal and Sterling Capital

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

Diversification Opportunities for Morningstar Municipal and Sterling Capital

0.73

Correlation Coefficient

Morningstar Municipal  Sterling Capital

Poor diversification

The 3 months correlation between Morningstar and Sterling is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Sterling Capital Securitized in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Sec 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 Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Sec has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Sterling Capital go up and down completely randomly.

Pair Corralation between Morningstar Municipal and Sterling Capital

Assuming the 90 days horizon Morningstar Municipal Bond is expected to generate 0.5 times more return on investment than Sterling Capital. However, Morningstar Municipal Bond is 2.01 times less risky than Sterling Capital. It trades about 0.09 of its potential returns per unit of risk. Sterling Capital Securitized is currently generating about 0.03 per unit of risk. If you would invest  928.00  in Morningstar Municipal Bond on October 10, 2024 and sell it today you would earn a total of  67.00  from holding Morningstar Municipal Bond or generate 7.22% return on investment over 90 days.

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

Morningstar Municipal Bond  vs.  Sterling Capital Securitized

Morningstar Municipal

Risk-Adjusted Performance

0 of 100

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.

Sterling Capital Sec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Capital Securitized has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sterling Capital 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 Sterling Capital

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

The idea behind Morningstar Municipal Bond and Sterling Capital Securitized 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.