Correlation Between Goldman Sachs and Ishares Municipal

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

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

Diversification Opportunities for Goldman Sachs and Ishares Municipal

0.45

Correlation Coefficient

Goldman Sachs  Ishares Municipal

Very weak diversification

The 3 months correlation between Goldman and Ishares is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs Small and Ishares Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ishares Municipal Bond and Goldman Sachs 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 Goldman Sachs Small are associated (or correlated) with Ishares Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ishares Municipal Bond has no effect on the direction of Goldman Sachs i.e., Goldman Sachs and Ishares Municipal go up and down completely randomly.

Pair Corralation between Goldman Sachs and Ishares Municipal

Assuming the 90 days horizon Goldman Sachs Small is expected to generate 5.89 times more return on investment than Ishares Municipal. However, Goldman Sachs is 5.89 times more volatile than Ishares Municipal Bond. It trades about 0.02 of its potential returns per unit of risk. Ishares Municipal Bond is currently generating about 0.05 per unit of risk. If you would invest  5,069  in Goldman Sachs Small on September 28, 2024 and sell it today you would earn a total of  531.00  from holding Goldman Sachs Small or generate 10.48% return on investment over 90 days.

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

Goldman Sachs Small  vs.  Ishares Municipal Bond

Goldman Sachs Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goldman Sachs Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

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.

Pair Trading with Goldman Sachs and Ishares Municipal

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

The idea behind Goldman Sachs Small and Ishares Municipal Bond 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.