Correlation Between Ishares Municipal and Great West

Can any of the company-specific risk be diversified away by investing in both Ishares Municipal and Great West 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 Great West 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 Great West Government Mortgage, you can compare the effects of market volatilities on Ishares Municipal and Great West 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 Great West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ishares Municipal and Great West.

Diversification Opportunities for Ishares Municipal and Great West

0.6

Correlation Coefficient

Ishares Municipal  Great West

Poor diversification

The 3 months correlation between Ishares and Great is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Great West Government Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Government 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 Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Government has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Great West go up and down completely randomly.

Pair Corralation between Ishares Municipal and Great West

Assuming the 90 days horizon Ishares Municipal Bond is expected to generate 0.76 times more return on investment than Great West. However, Ishares Municipal Bond is 1.32 times less risky than Great West. It trades about 0.02 of its potential returns per unit of risk. Great West Government Mortgage is currently generating about -0.16 per unit of risk. If you would invest  1,114  in Ishares Municipal Bond on September 14, 2024 and sell it today you would earn a total of  3.00  from holding Ishares Municipal Bond or generate 0.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Ishares Municipal Bond  vs.  Great West Government Mortgage

Ishares Municipal Bond

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ishares Municipal Bond are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ishares Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Great West Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great West Government Mortgage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Great West 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 Great West

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

The idea behind Ishares Municipal Bond and Great West Government Mortgage 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.