Correlation Between The National and Intermediate Term

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

Diversification Opportunities for The National and Intermediate Term

0.84

Correlation Coefficient

The National  Intermediate Term

Very poor diversification

The 3 months correlation between The and Intermediate is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Intermediate Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of The National i.e., The National and Intermediate Term go up and down completely randomly.

Pair Corralation between The National and Intermediate Term

Assuming the 90 days horizon The National is expected to generate 21.4 times less return on investment than Intermediate Term. But when comparing it to its historical volatility, The National Tax Free is 1.6 times less risky than Intermediate Term. It trades about 0.01 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  894.00  in Intermediate Term Bond Fund on December 27, 2024 and sell it today you would earn a total of  23.00  from holding Intermediate Term Bond Fund or generate 2.57% return on investment over 90 days.

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

The National Tax Free  vs.  Intermediate Term Bond Fund

National Tax

Risk-Adjusted Performance

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, The National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Intermediate Term Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Bond Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Intermediate Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with The National and Intermediate Term

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

The idea behind The National Tax Free and Intermediate Term Bond 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.