Correlation Between Invesco Municipal and Municipal Bond
Can any of the company-specific risk be diversified away by investing in both Invesco Municipal and Municipal Bond 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 Invesco Municipal and Municipal Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco Municipal Income and Municipal Bond Fund, you can compare the effects of market volatilities on Invesco Municipal and Municipal Bond 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 Invesco Municipal with a short position of Municipal Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Municipal and Municipal Bond.
Diversification Opportunities for Invesco Municipal and Municipal Bond
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Invesco and Municipal is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Municipal Income and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond and Invesco 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 Invesco Municipal Income are associated (or correlated) with Municipal Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Municipal Bond has no effect on the direction of Invesco Municipal i.e., Invesco Municipal and Municipal Bond go up and down completely randomly.
Pair Corralation between Invesco Municipal and Municipal Bond
Assuming the 90 days horizon Invesco Municipal Income is expected to under-perform the Municipal Bond. In addition to that, Invesco Municipal is 1.39 times more volatile than Municipal Bond Fund. It trades about -0.21 of its total potential returns per unit of risk. Municipal Bond Fund is currently generating about -0.18 per unit of volatility. If you would invest 976.00 in Municipal Bond Fund on January 25, 2024 and sell it today you would lose (6.00) from holding Municipal Bond Fund or give up 0.61% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Invesco Municipal Income vs. Municipal Bond Fund
Performance |
Timeline |
Invesco Municipal |
Municipal Bond |
Invesco Municipal and Municipal Bond Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Invesco Municipal and Municipal Bond
The main advantage of trading using opposite Invesco Municipal and Municipal Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Municipal position performs unexpectedly, Municipal Bond 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 Municipal Bond will offset losses from the drop in Municipal Bond's long position.The idea behind Invesco Municipal Income and Municipal Bond Fund 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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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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