Correlation Between High Yield and Sit Tax-free

Can any of the company-specific risk be diversified away by investing in both High Yield and Sit Tax-free 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 and Sit Tax-free 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 Sit Tax Free Income, you can compare the effects of market volatilities on High Yield and Sit Tax-free 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 with a short position of Sit Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and Sit Tax-free.

Diversification Opportunities for High Yield and Sit Tax-free

0.99

Correlation Coefficient

High Yield  Sit Tax-free

No risk reduction

The 3 months correlation between High and Sit is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and Sit Tax Free Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sit Tax Free and High Yield 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 Sit Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sit Tax Free has no effect on the direction of High Yield i.e., High Yield and Sit Tax-free go up and down completely randomly.

Pair Corralation between High Yield and Sit Tax-free

Assuming the 90 days horizon High Yield Municipal Fund is expected to generate 0.84 times more return on investment than Sit Tax-free. However, High Yield Municipal Fund is 1.19 times less risky than Sit Tax-free. It trades about -0.27 of its potential returns per unit of risk. Sit Tax Free Income is currently generating about -0.32 per unit of risk. If you would invest  895.00  in High Yield Municipal Fund on October 14, 2024 and sell it today you would lose (13.00) from holding High Yield Municipal Fund or give up 1.45% of portfolio value over 90 days.

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

High Yield Municipal Fund  vs.  Sit Tax Free Income

High Yield Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Yield Municipal Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sit Tax Free

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sit Tax Free Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Sit Tax-free is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with High Yield and Sit Tax-free

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

The idea behind High Yield Municipal Fund and Sit Tax Free Income 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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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.