Correlation Between Nuveen Preferred and California Municipal

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

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

Diversification Opportunities for Nuveen Preferred and California Municipal

0.76

Correlation Coefficient

Nuveen Preferred  California Municipal

Poor diversification

The 3 months correlation between Nuveen and California is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen Preferred Securities and California Municipal Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Municipal and Nuveen Preferred 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 Nuveen Preferred Securities are associated (or correlated) with California Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Municipal has no effect on the direction of Nuveen Preferred i.e., Nuveen Preferred and California Municipal go up and down completely randomly.

Pair Corralation between Nuveen Preferred and California Municipal

Assuming the 90 days horizon Nuveen Preferred Securities is expected to under-perform the California Municipal. But the mutual fund apears to be less risky and, when comparing its historical volatility, Nuveen Preferred Securities is 1.23 times less risky than California Municipal. The mutual fund trades about -0.49 of its potential returns per unit of risk. The California Municipal Portfolio is currently generating about -0.37 of returns per unit of risk over similar time horizon. If you would invest  1,399  in California Municipal Portfolio on October 11, 2024 and sell it today you would lose (18.00) from holding California Municipal Portfolio or give up 1.29% of portfolio value over 90 days.

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

Nuveen Preferred Securities  vs.  California Municipal Portfolio

Nuveen Preferred Sec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuveen Preferred Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Nuveen Preferred is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

California Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Municipal Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, California 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 Nuveen Preferred and California Municipal

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

The idea behind Nuveen Preferred Securities and California Municipal Portfolio 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.