Correlation Between Short Duration and New York

Can any of the company-specific risk be diversified away by investing in both Short Duration and New York 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 Short Duration and New York into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Short Duration Municipal and New York Municipal, you can compare the effects of market volatilities on Short Duration and New York 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 Short Duration with a short position of New York. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and New York.

Diversification Opportunities for Short Duration and New York

0.88

Correlation Coefficient

Short Duration  New York

Very poor diversification

The 3 months correlation between Short and New is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Municipal and New York Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New York Municipal and Short Duration 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 Short Duration Municipal are associated (or correlated) with New York. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New York Municipal has no effect on the direction of Short Duration i.e., Short Duration and New York go up and down completely randomly.

Pair Corralation between Short Duration and New York

Assuming the 90 days horizon Short Duration Municipal is expected to generate 0.44 times more return on investment than New York. However, Short Duration Municipal is 2.29 times less risky than New York. It trades about -0.27 of its potential returns per unit of risk. New York Municipal is currently generating about -0.33 per unit of risk. If you would invest  835.00  in Short Duration Municipal on October 9, 2024 and sell it today you would lose (5.00) from holding Short Duration Municipal or give up 0.6% of portfolio value over 90 days.

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

Short Duration Municipal  vs.  New York Municipal

Short Duration Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

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

New York Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Short Duration and New York

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

The idea behind Short Duration Municipal and New York Municipal 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.