Correlation Between Df Dent and California Tax-free

Can any of the company-specific risk be diversified away by investing in both Df Dent and California Tax-free 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 Df Dent and California Tax-free into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Df Dent Small and California Tax Free Fund, you can compare the effects of market volatilities on Df Dent and California Tax-free 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 Df Dent with a short position of California Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Df Dent and California Tax-free.

Diversification Opportunities for Df Dent and California Tax-free

0.75

Correlation Coefficient

Df Dent  California Tax-free

Poor diversification

The 3 months correlation between DFDSX and California is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Df Dent Small and California Tax Free Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Tax Free and Df Dent 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 Df Dent Small are associated (or correlated) with California Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Tax Free has no effect on the direction of Df Dent i.e., Df Dent and California Tax-free go up and down completely randomly.

Pair Corralation between Df Dent and California Tax-free

Assuming the 90 days horizon Df Dent Small is expected to under-perform the California Tax-free. In addition to that, Df Dent is 3.83 times more volatile than California Tax Free Fund. It trades about -0.31 of its total potential returns per unit of risk. California Tax Free Fund is currently generating about -0.38 per unit of volatility. If you would invest  1,065  in California Tax Free Fund on October 17, 2024 and sell it today you would lose (22.00) from holding California Tax Free Fund or give up 2.07% of portfolio value over 90 days.

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

Df Dent Small  vs.  California Tax Free Fund

Df Dent Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Df Dent Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Df Dent is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

California Tax Free

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Tax Free Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, California Tax-free is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Df Dent and California Tax-free

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

The idea behind Df Dent Small and California Tax Free 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.