Correlation Between Moderately Aggressive and Municipal Bond

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

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

Diversification Opportunities for Moderately Aggressive and Municipal Bond

0.76

Correlation Coefficient

Moderately Aggressive  Municipal Bond

Poor diversification

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

Pair Corralation between Moderately Aggressive and Municipal Bond

Assuming the 90 days horizon Moderately Aggressive Balanced is expected to under-perform the Municipal Bond. In addition to that, Moderately Aggressive is 3.59 times more volatile than Municipal Bond Portfolio. It trades about -0.1 of its total potential returns per unit of risk. Municipal Bond Portfolio is currently generating about -0.01 per unit of volatility. If you would invest  867.00  in Municipal Bond Portfolio on November 29, 2024 and sell it today you would lose (1.00) from holding Municipal Bond Portfolio or give up 0.12% of portfolio value over 90 days.

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

Moderately Aggressive Balanced  vs.  Municipal Bond Portfolio

Moderately Aggressive

Risk-Adjusted Performance

Very Weak

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

Municipal Bond Portfolio

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Moderately Aggressive and Municipal Bond

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

The idea behind Moderately Aggressive Balanced and Municipal Bond 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.