Correlation Between Ishares Municipal and Pace Large

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

By analyzing existing cross correlation between Ishares Municipal Bond and Pace Large Value, you can compare the effects of market volatilities on Ishares Municipal and Pace Large 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 Ishares Municipal with a short position of Pace Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ishares Municipal and Pace Large.

Diversification Opportunities for Ishares Municipal and Pace Large

0.02

Correlation Coefficient

Ishares Municipal  Pace Large

Significant diversification

The 3 months correlation between Ishares and Pace is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Pace Large Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Large Value and Ishares 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 Ishares Municipal Bond are associated (or correlated) with Pace Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Large Value has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Pace Large go up and down completely randomly.

Pair Corralation between Ishares Municipal and Pace Large

Assuming the 90 days horizon Ishares Municipal is expected to generate 9.26 times less return on investment than Pace Large. But when comparing it to its historical volatility, Ishares Municipal Bond is 2.65 times less risky than Pace Large. It trades about 0.04 of its potential returns per unit of risk. Pace Large Value is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,163  in Pace Large Value on September 12, 2024 and sell it today you would earn a total of  131.00  from holding Pace Large Value or generate 6.06% return on investment over 90 days.

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

Ishares Municipal Bond  vs.  Pace Large Value

Ishares Municipal Bond

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ishares Municipal Bond are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Ishares Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pace Large Value

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Value are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pace Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ishares Municipal and Pace Large

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

The idea behind Ishares Municipal Bond and Pace Large 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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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..