Correlation Between Dreyfus Municipal and Abbey Capital

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

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

Diversification Opportunities for Dreyfus Municipal and Abbey Capital

0.45

Correlation Coefficient

Dreyfus Municipal  Abbey Capital

Very weak diversification

The 3 months correlation between Dreyfus and Abbey is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Dreyfus Municipal Bond and Abbey Capital Multi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbey Capital Multi and Dreyfus 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 Dreyfus Municipal Bond are associated (or correlated) with Abbey Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbey Capital Multi has no effect on the direction of Dreyfus Municipal i.e., Dreyfus Municipal and Abbey Capital go up and down completely randomly.

Pair Corralation between Dreyfus Municipal and Abbey Capital

Assuming the 90 days horizon Dreyfus Municipal Bond is expected to under-perform the Abbey Capital. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dreyfus Municipal Bond is 1.45 times less risky than Abbey Capital. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Abbey Capital Multi is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,152  in Abbey Capital Multi on October 24, 2024 and sell it today you would lose (4.00) from holding Abbey Capital Multi or give up 0.35% of portfolio value over 90 days.

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

Dreyfus Municipal Bond  vs.  Abbey Capital Multi

Dreyfus Municipal Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Abbey Capital Multi

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Dreyfus Municipal and Abbey Capital

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

The idea behind Dreyfus Municipal Bond and Abbey Capital Multi 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.