Correlation Between Nuveen California and DWS Municipal

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

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

Diversification Opportunities for Nuveen California and DWS Municipal

0.52

Correlation Coefficient

Nuveen California  DWS Municipal

Very weak diversification

The 3 months correlation between Nuveen and DWS is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen California Select and DWS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DWS Municipal Income and Nuveen California 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 Nuveen California Select are associated (or correlated) with DWS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DWS Municipal Income has no effect on the direction of Nuveen California i.e., Nuveen California and DWS Municipal go up and down completely randomly.

Pair Corralation between Nuveen California and DWS Municipal

Considering the 90-day investment horizon Nuveen California is expected to generate 3.3 times less return on investment than DWS Municipal. In addition to that, Nuveen California is 1.02 times more volatile than DWS Municipal Income. It trades about 0.04 of its total potential returns per unit of risk. DWS Municipal Income is currently generating about 0.12 per unit of volatility. If you would invest  860.00  in DWS Municipal Income on August 20, 2024 and sell it today you would earn a total of  140.00  from holding DWS Municipal Income or generate 16.28% return on investment over 90 days.

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

Nuveen California Select  vs.  DWS Municipal Income

Nuveen California Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuveen California Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nuveen California is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

DWS Municipal Income

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DWS Municipal Income are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DWS Municipal is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nuveen California and DWS Municipal

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

The idea behind Nuveen California Select and DWS Municipal Income 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.