Correlation Between Municipal Bond and Long-term
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Long-term 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 Long-term into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Municipal Bond Fund and Long Term Government Fund, you can compare the effects of market volatilities on Municipal Bond and Long-term 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 Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Long-term.
Diversification Opportunities for Municipal Bond and Long-term
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Municipal and Long-term is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Fund and Long Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term Government 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 Fund are associated (or correlated) with Long-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Term Government has no effect on the direction of Municipal Bond i.e., Municipal Bond and Long-term go up and down completely randomly.
Pair Corralation between Municipal Bond and Long-term
Assuming the 90 days horizon Municipal Bond Fund is expected to generate 0.34 times more return on investment than Long-term. However, Municipal Bond Fund is 2.98 times less risky than Long-term. It trades about 0.04 of its potential returns per unit of risk. Long Term Government Fund is currently generating about 0.0 per unit of risk. If you would invest 868.00 in Municipal Bond Fund on March 29, 2025 and sell it today you would earn a total of 49.00 from holding Municipal Bond Fund or generate 5.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Municipal Bond Fund vs. Long Term Government Fund
Performance |
| Timeline |
| Municipal Bond |
| Long Term Government |
Municipal Bond and Long-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Long-term
The main advantage of trading using opposite Municipal Bond and Long-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Long-term 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 Long-term will offset losses from the drop in Long-term's long position.| Municipal Bond vs. Elfun Government Money | Municipal Bond vs. Us Government Securities | Municipal Bond vs. Sit Government Securities | Municipal Bond vs. Inverse Government Long |
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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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