Correlation Between California Bond and Thornburg Intermediate

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

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

Diversification Opportunities for California Bond and Thornburg Intermediate

0.84

Correlation Coefficient

California Bond  Thornburg Intermediate

Very poor diversification

The 3 months correlation between California and Thornburg is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Thornburg Intermediate Municip in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg Intermediate and California Bond 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 California Bond Fund are associated (or correlated) with Thornburg Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg Intermediate has no effect on the direction of California Bond i.e., California Bond and Thornburg Intermediate go up and down completely randomly.

Pair Corralation between California Bond and Thornburg Intermediate

Assuming the 90 days horizon California Bond is expected to generate 8.25 times less return on investment than Thornburg Intermediate. In addition to that, California Bond is 1.45 times more volatile than Thornburg Intermediate Municipal. It trades about 0.01 of its total potential returns per unit of risk. Thornburg Intermediate Municipal is currently generating about 0.09 per unit of volatility. If you would invest  1,301  in Thornburg Intermediate Municipal on December 22, 2024 and sell it today you would earn a total of  13.00  from holding Thornburg Intermediate Municipal or generate 1.0% return on investment over 90 days.

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

California Bond Fund  vs.  Thornburg Intermediate Municip

California Bond

Risk-Adjusted Performance

Very Weak

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

Thornburg Intermediate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thornburg Intermediate Municipal are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Thornburg Intermediate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with California Bond and Thornburg Intermediate

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

The idea behind California Bond Fund and Thornburg Intermediate 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.