Correlation Between High-yield Municipal and First Bancorp

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

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

Diversification Opportunities for High-yield Municipal and First Bancorp

0.42

Correlation Coefficient

High-yield Municipal  First Bancorp

Very weak diversification

The 3 months correlation between High-yield and First is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and High-yield 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 High Yield Municipal Fund are associated (or correlated) with First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of High-yield Municipal i.e., High-yield Municipal and First Bancorp go up and down completely randomly.

Pair Corralation between High-yield Municipal and First Bancorp

Assuming the 90 days horizon High Yield Municipal Fund is expected to generate 0.15 times more return on investment than First Bancorp. However, High Yield Municipal Fund is 6.5 times less risky than First Bancorp. It trades about 0.31 of its potential returns per unit of risk. First Bancorp is currently generating about 0.03 per unit of risk. If you would invest  865.00  in High Yield Municipal Fund on March 22, 2024 and sell it today you would earn a total of  24.00  from holding High Yield Municipal Fund or generate 2.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.67%
Values	Daily Returns

High Yield Municipal Fund  vs.  First Bancorp

High Yield Municipal

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High-yield Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Bancorp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, First Bancorp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with High-yield Municipal and First Bancorp

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

The idea behind High Yield Municipal Fund and First Bancorp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.