Correlation Between Short-term Municipal and Small Company

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

By analyzing existing cross correlation between Short Term Municipal Bond and Small Pany Value, you can compare the effects of market volatilities on Short-term Municipal and Small Company 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 Short-term Municipal with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Municipal and Small Company.

Diversification Opportunities for Short-term Municipal and Small Company

0.9

Correlation Coefficient

Short-term Municipal  Small Company

Almost no diversification

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

Pair Corralation between Short-term Municipal and Small Company

Assuming the 90 days horizon Short-term Municipal is expected to generate 6.57 times less return on investment than Small Company. But when comparing it to its historical volatility, Short Term Municipal Bond is 15.76 times less risky than Small Company. It trades about 0.38 of its potential returns per unit of risk. Small Pany Value is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  3,278  in Small Pany Value on April 26, 2025 and sell it today you would earn a total of  340.00  from holding Small Pany Value or generate 10.37% return on investment over 90 days.

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

Short Term Municipal Bond  vs.  Small Pany Value

Short Term Municipal

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Municipal Bond are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short-term Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Pany Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Value are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small Company may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Short-term Municipal and Small Company

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

The idea behind Short Term Municipal Bond and Small Pany Value 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 Commodity Directory module to find actively traded commodities issued by global exchanges.