Correlation Between Wilmington Municipal and Wilmington Broad

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

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

Diversification Opportunities for Wilmington Municipal and Wilmington Broad

0.94

Correlation Coefficient

Wilmington Municipal  Wilmington Broad

Almost no diversification

The 3 months correlation between Wilmington and Wilmington is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Wilmington Municipal Bond and Wilmington Broad Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmington Broad Market and Wilmington 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 Wilmington Municipal Bond are associated (or correlated) with Wilmington Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmington Broad Market has no effect on the direction of Wilmington Municipal i.e., Wilmington Municipal and Wilmington Broad go up and down completely randomly.

Pair Corralation between Wilmington Municipal and Wilmington Broad

Assuming the 90 days horizon Wilmington Municipal is expected to generate 2.76 times less return on investment than Wilmington Broad. But when comparing it to its historical volatility, Wilmington Municipal Bond is 1.53 times less risky than Wilmington Broad. It trades about 0.02 of its potential returns per unit of risk. Wilmington Broad Market is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  890.00  in Wilmington Broad Market on December 1, 2024 and sell it today you would earn a total of  6.00  from holding Wilmington Broad Market or generate 0.67% return on investment over 90 days.

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

Wilmington Municipal Bond  vs.  Wilmington Broad Market

Wilmington Municipal Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wilmington Municipal Bond are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Wilmington Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wilmington Broad Market

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wilmington Broad Market are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Wilmington Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wilmington Municipal and Wilmington Broad

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

The idea behind Wilmington Municipal Bond and Wilmington Broad Market 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.