Correlation Between Pace Municipal and First Foundation

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

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

Diversification Opportunities for Pace Municipal and First Foundation

0.93

Correlation Coefficient

Pace Municipal  First Foundation

Almost no diversification

The 3 months correlation between Pace and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Pace Municipal Fixed and First Foundation Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Foundation Fixed and Pace 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 Pace Municipal Fixed are associated (or correlated) with First Foundation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Foundation Fixed has no effect on the direction of Pace Municipal i.e., Pace Municipal and First Foundation go up and down completely randomly.

Pair Corralation between Pace Municipal and First Foundation

Assuming the 90 days horizon Pace Municipal is expected to generate 2.84 times less return on investment than First Foundation. But when comparing it to its historical volatility, Pace Municipal Fixed is 2.48 times less risky than First Foundation. It trades about 0.18 of its potential returns per unit of risk. First Foundation Fixed is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,101  in First Foundation Fixed on May 28, 2025 and sell it today you would earn a total of  37.00  from holding First Foundation Fixed or generate 3.36% return on investment over 90 days.

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

Pace Municipal Fixed  vs.  First Foundation Fixed

Pace Municipal Fixed

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Municipal Fixed are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pace Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Foundation Fixed

Risk-Adjusted Performance

Good

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

Pair Trading with Pace Municipal and First Foundation

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

The idea behind Pace Municipal Fixed and First Foundation Fixed 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.