Correlation Between Diversified Municipal and Goldman Sachs

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

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

Diversification Opportunities for Diversified Municipal and Goldman Sachs

0.85

Correlation Coefficient

Diversified Municipal  Goldman Sachs

Very poor diversification

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

Pair Corralation between Diversified Municipal and Goldman Sachs

Assuming the 90 days horizon Diversified Municipal is expected to generate 2.62 times less return on investment than Goldman Sachs. In addition to that, Diversified Municipal is 1.69 times more volatile than Goldman Sachs Short. It trades about 0.02 of its total potential returns per unit of risk. Goldman Sachs Short is currently generating about 0.1 per unit of volatility. If you would invest  1,033  in Goldman Sachs Short on December 3, 2024 and sell it today you would earn a total of  6.00  from holding Goldman Sachs Short or generate 0.58% return on investment over 90 days.

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

Diversified Municipal Portfoli  vs.  Goldman Sachs Short

Diversified Municipal

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Municipal Portfolio are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Goldman Sachs Short

Risk-Adjusted Performance

OK

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

Pair Trading with Diversified Municipal and Goldman Sachs

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

The idea behind Diversified Municipal Portfolio and Goldman Sachs Short 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.