Correlation Between Morningstar Municipal and Ab Relative
Can any of the company-specific risk be diversified away by investing in both Morningstar Municipal and Ab Relative 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 Morningstar Municipal and Ab Relative into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morningstar Municipal Bond and Ab Relative Value, you can compare the effects of market volatilities on Morningstar Municipal and Ab Relative 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 Morningstar Municipal with a short position of Ab Relative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Municipal and Ab Relative.
Diversification Opportunities for Morningstar Municipal and Ab Relative
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Morningstar and CABDX is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Ab Relative Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Relative Value and Morningstar 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 Morningstar Municipal Bond are associated (or correlated) with Ab Relative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Relative Value has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Ab Relative go up and down completely randomly.
Pair Corralation between Morningstar Municipal and Ab Relative
Assuming the 90 days horizon Morningstar Municipal is expected to generate 2.42 times less return on investment than Ab Relative. But when comparing it to its historical volatility, Morningstar Municipal Bond is 4.97 times less risky than Ab Relative. It trades about 0.22 of its potential returns per unit of risk. Ab Relative Value is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 634.00 in Ab Relative Value on June 7, 2025 and sell it today you would earn a total of 22.00 from holding Ab Relative Value or generate 3.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Morningstar Municipal Bond vs. Ab Relative Value
Performance |
| Timeline |
| Morningstar Municipal |
| Ab Relative Value |
Morningstar Municipal and Ab Relative Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar Municipal and Ab Relative
The main advantage of trading using opposite Morningstar Municipal and Ab Relative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Municipal position performs unexpectedly, Ab Relative 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 Ab Relative will offset losses from the drop in Ab Relative's long position.The idea behind Morningstar Municipal Bond and Ab Relative 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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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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