Correlation Between Morningstar Municipal and Bond Fund

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

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

Diversification Opportunities for Morningstar Municipal and Bond Fund

0.6

Correlation Coefficient

Morningstar Municipal  Bond Fund

Poor diversification

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

Pair Corralation between Morningstar Municipal and Bond Fund

Assuming the 90 days horizon Morningstar Municipal is expected to generate 1.01 times less return on investment than Bond Fund. But when comparing it to its historical volatility, Morningstar Municipal Bond is 1.72 times less risky than Bond Fund. It trades about 0.04 of its potential returns per unit of risk. Bond Fund Of is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,101  in Bond Fund Of on September 25, 2024 and sell it today you would earn a total of  11.00  from holding Bond Fund Of or generate 1.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Morningstar Municipal Bond  vs.  Bond Fund Of

Morningstar Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morningstar Municipal Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Morningstar Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bond Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bond Fund Of has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Bond Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morningstar Municipal and Bond Fund

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

The idea behind Morningstar Municipal Bond and Bond Fund Of 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.