Correlation Between Municipal Bond and Us Government
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Us Government 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 Us Government 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 Us Government Securities, you can compare the effects of market volatilities on Municipal Bond and Us Government 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 Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Us Government.
Diversification Opportunities for Municipal Bond and Us Government
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between MUNICIPAL and UGSDX is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Portfolio and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities 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 Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of Municipal Bond i.e., Municipal Bond and Us Government go up and down completely randomly.
Pair Corralation between Municipal Bond and Us Government
Assuming the 90 days horizon Municipal Bond Portfolio is expected to generate 1.55 times more return on investment than Us Government. However, Municipal Bond is 1.55 times more volatile than Us Government Securities. It trades about 0.2 of its potential returns per unit of risk. Us Government Securities is currently generating about 0.18 per unit of risk. If you would invest 859.00 in Municipal Bond Portfolio on April 14, 2025 and sell it today you would earn a total of 15.00 from holding Municipal Bond Portfolio or generate 1.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Municipal Bond Portfolio vs. Us Government Securities
Performance |
| Timeline |
| Municipal Bond Portfolio |
| Us Government Securities |
Municipal Bond and Us Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Us Government
The main advantage of trading using opposite Municipal Bond and Us Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Us Government 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 Us Government will offset losses from the drop in Us Government's long position.| Municipal Bond vs. Salient Alternative Beta | Municipal Bond vs. Aggressive Balanced Allocation | Municipal Bond vs. Salient Alternative Beta | Municipal Bond vs. Moderately Aggressive Balanced |
| Us Government vs. Putnam Global Technology | Us Government vs. Nationwide Bailard Technology | Us Government vs. Global Technology Portfolio | Us Government vs. Allianzgi Technology Fund |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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