Correlation Between Municipal Bond and Moderately Servative

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

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

Diversification Opportunities for Municipal Bond and Moderately Servative

0.73

Correlation Coefficient

Municipal Bond  Moderately Servative

Poor diversification

The 3 months correlation between Municipal and Moderately is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Portfolio and Moderately Servative Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderately Servative and Municipal Bond 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 Municipal Bond Portfolio are associated (or correlated) with Moderately Servative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderately Servative has no effect on the direction of Municipal Bond i.e., Municipal Bond and Moderately Servative go up and down completely randomly.

Pair Corralation between Municipal Bond and Moderately Servative

Assuming the 90 days horizon Municipal Bond is expected to generate 6.74 times less return on investment than Moderately Servative. But when comparing it to its historical volatility, Municipal Bond Portfolio is 3.54 times less risky than Moderately Servative. It trades about 0.14 of its potential returns per unit of risk. Moderately Servative Balanced is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,061  in Moderately Servative Balanced on May 4, 2025 and sell it today you would earn a total of  76.00  from holding Moderately Servative Balanced or generate 7.16% return on investment over 90 days.

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

Municipal Bond Portfolio  vs.  Moderately Servative Balanced

Municipal Bond Portfolio

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Municipal Bond Portfolio are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Municipal Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Moderately Servative

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Servative Balanced are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Moderately Servative may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Municipal Bond and Moderately Servative

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

The idea behind Municipal Bond Portfolio and Moderately Servative Balanced 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.