Correlation Between Lifestyle and California Municipal

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

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

Diversification Opportunities for Lifestyle and California Municipal

0.9

Correlation Coefficient

Lifestyle  California Municipal

Almost no diversification

The 3 months correlation between Lifestyle and California is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Lifestyle Ii Moderate and California Municipal Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Municipal and Lifestyle 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 Lifestyle Ii Moderate are associated (or correlated) with California Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Municipal has no effect on the direction of Lifestyle i.e., Lifestyle and California Municipal go up and down completely randomly.

Pair Corralation between Lifestyle and California Municipal

Assuming the 90 days horizon Lifestyle Ii Moderate is expected to generate 3.45 times more return on investment than California Municipal. However, Lifestyle is 3.45 times more volatile than California Municipal Portfolio. It trades about 0.25 of its potential returns per unit of risk. California Municipal Portfolio is currently generating about 0.2 per unit of risk. If you would invest  1,083  in Lifestyle Ii Moderate on May 6, 2025 and sell it today you would earn a total of  57.00  from holding Lifestyle Ii Moderate or generate 5.26% return on investment over 90 days.

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

Lifestyle Ii Moderate  vs.  California Municipal Portfolio

Lifestyle Ii Moderate

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lifestyle Ii Moderate are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Lifestyle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

California Municipal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in California Municipal Portfolio are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, California Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lifestyle and California Municipal

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

The idea behind Lifestyle Ii Moderate and California Municipal 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.