Correlation Between High-yield Municipal and First Trust

Can any of the company-specific risk be diversified away by investing in both High-yield Municipal and First Trust 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 High-yield Municipal and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between High Yield Municipal Fund and First Trust Developed, you can compare the effects of market volatilities on High-yield Municipal and First Trust 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 High-yield Municipal with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of High-yield Municipal and First Trust.

Diversification Opportunities for High-yield Municipal and First Trust

0.46

Correlation Coefficient

High-yield Municipal  First Trust

Very weak diversification

The 3 months correlation between High-yield and First is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and First Trust Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Developed and High-yield 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 High Yield Municipal Fund are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Developed has no effect on the direction of High-yield Municipal i.e., High-yield Municipal and First Trust go up and down completely randomly.

Pair Corralation between High-yield Municipal and First Trust

Assuming the 90 days horizon High Yield Municipal Fund is expected to generate 0.28 times more return on investment than First Trust. However, High Yield Municipal Fund is 3.61 times less risky than First Trust. It trades about 0.08 of its potential returns per unit of risk. First Trust Developed is currently generating about -0.01 per unit of risk. If you would invest  890.00  in High Yield Municipal Fund on September 2, 2024 and sell it today you would earn a total of  13.00  from holding High Yield Municipal Fund or generate 1.46% return on investment over 90 days.

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

High Yield Municipal Fund  vs.  First Trust Developed

High Yield Municipal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High-yield Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with High-yield Municipal and First Trust

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

The idea behind High Yield Municipal Fund and First Trust Developed 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.