Correlation Between Ishares Municipal and Pace Smallmedium

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

Diversification Opportunities for Ishares Municipal and Pace Smallmedium

0.24

Correlation Coefficient

Ishares Municipal  Pace Smallmedium

Modest diversification

The 3 months correlation between Ishares and Pace is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Pace Smallmedium Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Smallmedium Growth 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 Smallmedium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Smallmedium Growth has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Pace Smallmedium go up and down completely randomly.

Pair Corralation between Ishares Municipal and Pace Smallmedium

Assuming the 90 days horizon Ishares Municipal Bond is expected to generate 0.25 times more return on investment than Pace Smallmedium. However, Ishares Municipal Bond is 4.05 times less risky than Pace Smallmedium. It trades about -0.23 of its potential returns per unit of risk. Pace Smallmedium Growth is currently generating about -0.43 per unit of risk. If you would invest  1,111  in Ishares Municipal Bond on September 25, 2024 and sell it today you would lose (15.00) from holding Ishares Municipal Bond or give up 1.35% of portfolio value over 90 days.

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

Ishares Municipal Bond  vs.  Pace Smallmedium Growth

Ishares Municipal Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ishares Municipal Bond has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pace Smallmedium Growth

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Smallmedium Growth are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pace Smallmedium 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 Smallmedium

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

The idea behind Ishares Municipal Bond and Pace Smallmedium Growth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.