Correlation Between National Tax and Mid Capitalization

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

Diversification Opportunities for National Tax and Mid Capitalization

-0.24

Correlation Coefficient

National Tax  Mid Capitalization

Very good diversification

The 3 months correlation between National and Mid is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Mid Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Capitalization 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 Mid Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Capitalization has no effect on the direction of National Tax i.e., National Tax and Mid Capitalization go up and down completely randomly.

Pair Corralation between National Tax and Mid Capitalization

Assuming the 90 days horizon The National Tax Free is expected to generate 0.07 times more return on investment than Mid Capitalization. However, The National Tax Free is 14.42 times less risky than Mid Capitalization. It trades about 0.01 of its potential returns per unit of risk. Mid Capitalization Portfolio is currently generating about -0.04 per unit of risk. If you would invest  1,880  in The National Tax Free on September 13, 2024 and sell it today you would earn a total of  2.00  from holding The National Tax Free or generate 0.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

The National Tax Free  vs.  Mid Capitalization Portfolio

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.

Mid Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid Capitalization Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with National Tax and Mid Capitalization

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

The idea behind The National Tax Free and Mid Capitalization Portfolio 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..