Correlation Between National Tax and Absolute Strategies

Can any of the company-specific risk be diversified away by investing in both National Tax and Absolute Strategies 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 National Tax and Absolute Strategies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The National Tax Free and Absolute Strategies Fund, you can compare the effects of market volatilities on National Tax and Absolute Strategies 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 National Tax with a short position of Absolute Strategies. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Tax and Absolute Strategies.

Diversification Opportunities for National Tax and Absolute Strategies

0.16

Correlation Coefficient

National Tax  Absolute Strategies

Average diversification

The 3 months correlation between National and Absolute is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Absolute Strategies Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Strategies and National 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 The National Tax Free are associated (or correlated) with Absolute Strategies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Strategies has no effect on the direction of National Tax i.e., National Tax and Absolute Strategies go up and down completely randomly.

Pair Corralation between National Tax and Absolute Strategies

Assuming the 90 days horizon The National Tax Free is expected to generate 0.45 times more return on investment than Absolute Strategies. However, The National Tax Free is 2.23 times less risky than Absolute Strategies. It trades about 0.04 of its potential returns per unit of risk. Absolute Strategies Fund is currently generating about -0.09 per unit of risk. If you would invest  1,773  in The National Tax Free on September 26, 2024 and sell it today you would earn a total of  79.00  from holding The National Tax Free or generate 4.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.94%
Values	Daily Returns

The National Tax Free  vs.  Absolute Strategies Fund

National Tax

Risk-Adjusted Performance

0 of 100

Very Weak

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

Absolute Strategies

Risk-Adjusted Performance

0 of 100

Insignificant

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

Pair Trading with National Tax and Absolute Strategies

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

The idea behind The National Tax Free and Absolute Strategies 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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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.