Correlation Between The National and The Value

Can any of the company-specific risk be diversified away by investing in both The National and The Value 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 The National and The Value 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 The Value Fund, you can compare the effects of market volatilities on The National and The Value 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 The National with a short position of The Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of The National and The Value.

Diversification Opportunities for The National and The Value

-0.29

Correlation Coefficient

The National  The Value

Very good diversification

The 3 months correlation between The and The is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and The Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund and The National 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 The Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund has no effect on the direction of The National i.e., The National and The Value go up and down completely randomly.

Pair Corralation between The National and The Value

Assuming the 90 days horizon The National is expected to generate 13.6 times less return on investment than The Value. But when comparing it to its historical volatility, The National Tax Free is 3.33 times less risky than The Value. It trades about 0.04 of its potential returns per unit of risk. The Value Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  3,393  in The Value Fund on September 2, 2024 and sell it today you would earn a total of  230.00  from holding The Value Fund or generate 6.78% return on investment over 90 days.

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

The National Tax Free  vs.  The Value Fund

National Tax

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The National Tax Free are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, The National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Fund

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Value Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, The Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with The National and The Value

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

The idea behind The National Tax Free and The Value 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.