Correlation Between The Gold and Diversified Municipal

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

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

Diversification Opportunities for The Gold and Diversified Municipal

0.42

Correlation Coefficient

The Gold  Diversified Municipal

Very weak diversification

The 3 months correlation between The and Diversified is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding The Gold Bullion and Diversified Municipal Portfoli in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Municipal and The Gold 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 The Gold Bullion are associated (or correlated) with Diversified Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Municipal has no effect on the direction of The Gold i.e., The Gold and Diversified Municipal go up and down completely randomly.

Pair Corralation between The Gold and Diversified Municipal

Assuming the 90 days horizon The Gold Bullion is expected to generate 8.9 times more return on investment than Diversified Municipal. However, The Gold is 8.9 times more volatile than Diversified Municipal Portfolio. It trades about 0.01 of its potential returns per unit of risk. Diversified Municipal Portfolio is currently generating about 0.07 per unit of risk. If you would invest  1,971  in The Gold Bullion on October 11, 2024 and sell it today you would earn a total of  27.00  from holding The Gold Bullion or generate 1.37% return on investment over 90 days.

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

The Gold Bullion  vs.  Diversified Municipal Portfoli

Gold Bullion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Gold Bullion has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Diversified Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind The Gold Bullion and Diversified 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.