Correlation Between Intermediate-term and Technology Munications
Can any of the company-specific risk be diversified away by investing in both Intermediate-term and Technology Munications 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 Intermediate-term and Technology Munications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Technology Munications Portfolio, you can compare the effects of market volatilities on Intermediate-term and Technology Munications 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 Intermediate-term with a short position of Technology Munications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Technology Munications.
Diversification Opportunities for Intermediate-term and Technology Munications
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Intermediate-term and Technology is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Technology Munications Portfol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Munications and Intermediate-term 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 Intermediate Term Tax Free Bond are associated (or correlated) with Technology Munications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Munications has no effect on the direction of Intermediate-term i.e., Intermediate-term and Technology Munications go up and down completely randomly.
Pair Corralation between Intermediate-term and Technology Munications
Assuming the 90 days horizon Intermediate-term is expected to generate 21.75 times less return on investment than Technology Munications. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 7.48 times less risky than Technology Munications. It trades about 0.14 of its potential returns per unit of risk. Technology Munications Portfolio is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest 1,728 in Technology Munications Portfolio on April 20, 2025 and sell it today you would earn a total of 542.00 from holding Technology Munications Portfolio or generate 31.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.41% |
| Values | Daily Returns |
Intermediate Term Tax Free Bon vs. Technology Munications Portfol
Performance |
| Timeline |
| Intermediate Term Tax |
| Technology Munications |
Intermediate-term and Technology Munications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intermediate-term and Technology Munications
The main advantage of trading using opposite Intermediate-term and Technology Munications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate-term position performs unexpectedly, Technology Munications 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 Technology Munications will offset losses from the drop in Technology Munications' long position.| Intermediate-term vs. Mid Cap Value | Intermediate-term vs. Equity Growth Fund | Intermediate-term vs. Income Growth Fund | Intermediate-term vs. Diversified Bond Fund |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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