Can any of the company-specific risk be diversified away by investing in both Morningstar Municipal and Nuveen Minnesota 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 Nuveen Minnesota 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 Nuveen Minnesota Municipal, you can compare the effects of market volatilities on Morningstar Municipal and Nuveen Minnesota 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 Nuveen Minnesota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Municipal and Nuveen Minnesota.
Diversification Opportunities for Morningstar Municipal and Nuveen Minnesota
The 3 months correlation between Morningstar and Nuveen is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Nuveen Minnesota Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Minnesota Mun 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 Nuveen Minnesota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Minnesota Mun has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Nuveen Minnesota go up and down completely randomly.
Pair Corralation between Morningstar Municipal and Nuveen Minnesota
Assuming the 90 days horizon Morningstar Municipal is expected to generate 1.06 times less return on investment than Nuveen Minnesota. But when comparing it to its historical volatility, Morningstar Municipal Bond is 1.55 times less risky than Nuveen Minnesota. It trades about 0.07 of its potential returns per unit of risk. Nuveen Minnesota Municipal is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,000.00 in Nuveen Minnesota Municipal on March 6, 2024 and sell it today you would earn a total of 64.00 from holding Nuveen Minnesota Municipal or generate 6.4% return on investment over 90 days.
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.
Over the last 90 days Nuveen Minnesota Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Nuveen Minnesota is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.