Correlation Between BlackRock Municipal and Invesco Municipal

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

By analyzing existing cross correlation between BlackRock Municipal Income and Invesco Municipal Trust, you can compare the effects of market volatilities on BlackRock Municipal and Invesco Municipal 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 BlackRock Municipal with a short position of Invesco Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of BlackRock Municipal and Invesco Municipal.

Diversification Opportunities for BlackRock Municipal and Invesco Municipal

0.66

Correlation Coefficient

BlackRock Municipal  Invesco Municipal

Poor diversification

The 3 months correlation between BlackRock and Invesco is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding BlackRock Municipal Income and Invesco Municipal Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Municipal Trust and BlackRock 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 BlackRock Municipal Income are associated (or correlated) with Invesco Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Municipal Trust has no effect on the direction of BlackRock Municipal i.e., BlackRock Municipal and Invesco Municipal go up and down completely randomly.

Pair Corralation between BlackRock Municipal and Invesco Municipal

Considering the 90-day investment horizon BlackRock Municipal Income is expected to under-perform the Invesco Municipal. But the stock apears to be less risky and, when comparing its historical volatility, BlackRock Municipal Income is 1.07 times less risky than Invesco Municipal. The stock trades about 0.0 of its potential returns per unit of risk. The Invesco Municipal Trust is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  993.00  in Invesco Municipal Trust on September 3, 2024 and sell it today you would earn a total of  36.00  from holding Invesco Municipal Trust or generate 3.63% return on investment over 90 days.

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

BlackRock Municipal Income  vs.  Invesco Municipal Trust

BlackRock Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlackRock Municipal Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BlackRock Municipal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Invesco Municipal Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Municipal Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking signals, Invesco Municipal is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with BlackRock Municipal and Invesco Municipal

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

The idea behind BlackRock Municipal Income and Invesco Municipal Trust 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.