Correlation Between Pace Municipal and Total Return

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

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

Diversification Opportunities for Pace Municipal and Total Return

0.85

Correlation Coefficient

Pace Municipal  Total Return

Very poor diversification

The 3 months correlation between Pace and Total is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Pace Municipal Fixed and Total Return Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Total Return Bond and Pace 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 Pace Municipal Fixed are associated (or correlated) with Total Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Total Return Bond has no effect on the direction of Pace Municipal i.e., Pace Municipal and Total Return go up and down completely randomly.

Pair Corralation between Pace Municipal and Total Return

Assuming the 90 days horizon Pace Municipal is expected to generate 2.68 times less return on investment than Total Return. But when comparing it to its historical volatility, Pace Municipal Fixed is 1.73 times less risky than Total Return. It trades about 0.09 of its potential returns per unit of risk. Total Return Bond is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,076  in Total Return Bond on December 19, 2024 and sell it today you would earn a total of  29.00  from holding Total Return Bond or generate 2.7% return on investment over 90 days.

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

Pace Municipal Fixed  vs.  Total Return Bond

Pace Municipal Fixed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Municipal Fixed are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pace Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Total Return Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Total Return Bond are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Total Return is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pace Municipal and Total Return

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

The idea behind Pace Municipal Fixed and Total Return 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.