Correlation Between ALABAMA TAX and Government Street

Can any of the company-specific risk be diversified away by investing in both ALABAMA TAX and Government Street 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 ALABAMA TAX and Government Street into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ALABAMA TAX FREE BOND and Government Street Equity, you can compare the effects of market volatilities on ALABAMA TAX and Government Street 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 ALABAMA TAX with a short position of Government Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALABAMA TAX and Government Street.

Diversification Opportunities for ALABAMA TAX and Government Street

0.8

Correlation Coefficient

ALABAMA TAX  Government Street

Very poor diversification

The 3 months correlation between ALABAMA and Government is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ALABAMA TAX FREE BOND and Government Street Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Street Equity and ALABAMA TAX 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 ALABAMA TAX FREE BOND are associated (or correlated) with Government Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Street Equity has no effect on the direction of ALABAMA TAX i.e., ALABAMA TAX and Government Street go up and down completely randomly.

Pair Corralation between ALABAMA TAX and Government Street

Assuming the 90 days horizon ALABAMA TAX FREE BOND is expected to generate 0.58 times more return on investment than Government Street. However, ALABAMA TAX FREE BOND is 1.73 times less risky than Government Street. It trades about -0.04 of its potential returns per unit of risk. Government Street Equity is currently generating about -0.07 per unit of risk. If you would invest  1,228  in ALABAMA TAX FREE BOND on December 23, 2024 and sell it today you would lose (19.00) from holding ALABAMA TAX FREE BOND or give up 1.55% of portfolio value over 90 days.

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

ALABAMA TAX FREE BOND  vs.  Government Street Equity

ALABAMA TAX FREE

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALABAMA TAX FREE BOND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, ALABAMA TAX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Government Street Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with ALABAMA TAX and Government Street

The main advantage of trading using opposite ALABAMA TAX and Government Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ALABAMA TAX position performs unexpectedly, Government Street 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 Government Street will offset losses from the drop in Government Street's long position.

The idea behind ALABAMA TAX FREE BOND and Government Street Equity 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.