Correlation Between Managed Account and Ishares Municipal

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

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

Diversification Opportunities for Managed Account and Ishares Municipal

0.89

Correlation Coefficient

Managed Account  Ishares Municipal

Very poor diversification

The 3 months correlation between Managed and Ishares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Managed Account Series 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 Managed Account 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 Managed Account Series 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 Managed Account i.e., Managed Account and Ishares Municipal go up and down completely randomly.

Pair Corralation between Managed Account and Ishares Municipal

Assuming the 90 days horizon Managed Account Series is expected to under-perform the Ishares Municipal. But the mutual fund apears to be less risky and, when comparing its historical volatility, Managed Account Series is 1.3 times less risky than Ishares Municipal. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Ishares Municipal Bond is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,104  in Ishares Municipal Bond on October 6, 2024 and sell it today you would lose (3.00) from holding Ishares Municipal Bond or give up 0.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.62%
Values	Daily Returns

Managed Account Series  vs.  Ishares Municipal Bond

Managed Account Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Managed Account Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Managed Account 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

0 of 100

Very Weak

Over the last 90 days Ishares Municipal Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Ishares 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 Managed Account and Ishares Municipal

The main advantage of trading using opposite Managed Account and Ishares Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Managed Account 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 Managed Account Series 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.