Correlation Between DTF Tax and CBH

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

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

Diversification Opportunities for DTF Tax and CBH

0.43

Correlation Coefficient

DTF Tax  CBH

Very weak diversification

The 3 months correlation between DTF and CBH is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding DTF Tax Free and CBH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CBH and DTF 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 DTF Tax Free are associated (or correlated) with CBH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CBH has no effect on the direction of DTF Tax i.e., DTF Tax and CBH go up and down completely randomly.

Pair Corralation between DTF Tax and CBH

Considering the 90-day investment horizon DTF Tax is expected to generate 2005.09 times less return on investment than CBH. But when comparing it to its historical volatility, DTF Tax Free is 205.33 times less risky than CBH. It trades about 0.07 of its potential returns per unit of risk. CBH is currently generating about 0.71 of returns per unit of risk over similar time horizon. If you would invest  919.00  in CBH on August 30, 2024 and sell it today you would earn a total of  855.00  from holding CBH or generate 93.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	3.17%
Values	Daily Returns

DTF Tax Free  vs.  CBH

DTF Tax Free

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DTF Tax Free are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DTF Tax is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

CBH

Risk-Adjusted Performance

0 of 100

Excellent

Over the last 90 days CBH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly uncertain fundamental drivers, CBH demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DTF Tax and CBH

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

The idea behind DTF Tax Free and CBH 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.