Correlation Between Morningstar Municipal and Optimum Small

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

Diversification Opportunities for Morningstar Municipal and Optimum Small

0.12

Correlation Coefficient

Morningstar Municipal  Optimum Small

Average diversification

The 3 months correlation between Morningstar and Optimum is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Optimum Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum Small Mid 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 Optimum Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Small Mid has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Optimum Small go up and down completely randomly.

Pair Corralation between Morningstar Municipal and Optimum Small

Assuming the 90 days horizon Morningstar Municipal is expected to generate 8.62 times less return on investment than Optimum Small. But when comparing it to its historical volatility, Morningstar Municipal Bond is 5.42 times less risky than Optimum Small. It trades about 0.21 of its potential returns per unit of risk. Optimum Small Mid Cap is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,149  in Optimum Small Mid Cap on September 4, 2024 and sell it today you would earn a total of  112.00  from holding Optimum Small Mid Cap or generate 9.75% return on investment over 90 days.

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

Morningstar Municipal Bond  vs.  Optimum Small Mid Cap

Morningstar Municipal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Municipal Bond are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. 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.

Optimum Small Mid

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optimum Small Mid Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Optimum Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Morningstar Municipal and Optimum Small

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

The idea behind Morningstar Municipal Bond and Optimum Small Mid Cap 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.

Check out your portfolio center.

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.