Correlation Between National Tax and Lifex Inflation

Can any of the company-specific risk be diversified away by investing in both National Tax and Lifex Inflation 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 Lifex Inflation 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 Lifex Inflation Protected Income, you can compare the effects of market volatilities on National Tax and Lifex Inflation 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 Lifex Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Tax and Lifex Inflation.

Diversification Opportunities for National Tax and Lifex Inflation

-0.18

Correlation Coefficient

National Tax  Lifex Inflation

Good diversification

The 3 months correlation between National and Lifex is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Lifex Inflation Protected Inco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifex Inflation Prot 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 Lifex Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifex Inflation Prot has no effect on the direction of National Tax i.e., National Tax and Lifex Inflation go up and down completely randomly.

Pair Corralation between National Tax and Lifex Inflation

Assuming the 90 days horizon National Tax is expected to generate 2.54 times less return on investment than Lifex Inflation. But when comparing it to its historical volatility, The National Tax Free is 2.17 times less risky than Lifex Inflation. It trades about 0.08 of its potential returns per unit of risk. Lifex Inflation Protected Income is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,425  in Lifex Inflation Protected Income on September 15, 2024 and sell it today you would earn a total of  94.00  from holding Lifex Inflation Protected Income or generate 3.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

The National Tax Free  vs.  Lifex Inflation Protected Inco

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.

Lifex Inflation Prot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifex Inflation Protected Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Lifex Inflation 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 Lifex Inflation

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

The idea behind The National Tax Free and Lifex Inflation Protected 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.