Correlation Between Municipal Bond and Franklin Federal
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Franklin Federal 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 Municipal Bond and Franklin Federal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Municipal Bond Fund and Franklin Federal Tax Free, you can compare the effects of market volatilities on Municipal Bond and Franklin Federal 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 Municipal Bond with a short position of Franklin Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Franklin Federal.
Diversification Opportunities for Municipal Bond and Franklin Federal
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Municipal and Franklin is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Municipal Bond Fund and Franklin Federal Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Federal Tax and Municipal Bond 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 Municipal Bond Fund are associated (or correlated) with Franklin Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Federal Tax has no effect on the direction of Municipal Bond i.e., Municipal Bond and Franklin Federal go up and down completely randomly.
Pair Corralation between Municipal Bond and Franklin Federal
Assuming the 90 days horizon Municipal Bond Fund is expected to generate 0.82 times more return on investment than Franklin Federal. However, Municipal Bond Fund is 1.22 times less risky than Franklin Federal. It trades about -0.23 of its potential returns per unit of risk. Franklin Federal Tax Free is currently generating about -0.28 per unit of risk. If you would invest 977.00 in Municipal Bond Fund on January 25, 2024 and sell it today you would lose (8.00) from holding Municipal Bond Fund or give up 0.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Municipal Bond Fund vs. Franklin Federal Tax Free
Performance |
| Timeline |
| Municipal Bond |
| Franklin Federal Tax |
Municipal Bond and Franklin Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Franklin Federal
The main advantage of trading using opposite Municipal Bond and Franklin Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Franklin Federal 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 Franklin Federal will offset losses from the drop in Franklin Federal's long position.| Municipal Bond vs. Vanguard Long Term Tax Exempt | Municipal Bond vs. Vanguard High Yield Tax Exempt | Municipal Bond vs. Strategic Advisers Municipal |
| Franklin Federal vs. Vanguard Long Term Tax Exempt | Franklin Federal vs. Vanguard High Yield Tax Exempt | Franklin Federal vs. Strategic Advisers Municipal |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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