Correlation Between National Tax and Vanguard Small

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

Diversification Opportunities for National Tax and Vanguard Small

0.07

Correlation Coefficient

National Tax  Vanguard Small

Significant diversification

The 3 months correlation between National and Vanguard is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of National Tax i.e., National Tax and Vanguard Small go up and down completely randomly.

Pair Corralation between National Tax and Vanguard Small

Assuming the 90 days horizon The National Tax Free is expected to generate 0.25 times more return on investment than Vanguard Small. However, The National Tax Free is 4.0 times less risky than Vanguard Small. It trades about -0.21 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about -0.48 per unit of risk. If you would invest  1,870  in The National Tax Free on September 25, 2024 and sell it today you would lose (18.00) from holding The National Tax Free or give up 0.96% of portfolio value over 90 days.

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

The National Tax Free  vs.  Vanguard Small Cap Value

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.

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Small 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 Vanguard Small

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

The idea behind The National Tax Free and Vanguard Small Cap Value 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.