Correlation Between Hunter Small and California Tax

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

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

Diversification Opportunities for Hunter Small and California Tax

0.4

Correlation Coefficient

Hunter Small  California Tax

Very weak diversification

The 3 months correlation between Hunter and California is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hunter Small Cap 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 Hunter Small 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 Hunter Small Cap are associated (or correlated) with California Tax. 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 Hunter Small i.e., Hunter Small and California Tax go up and down completely randomly.

Pair Corralation between Hunter Small and California Tax

Assuming the 90 days horizon Hunter Small Cap is expected to generate 5.04 times more return on investment than California Tax. However, Hunter Small is 5.04 times more volatile than California Tax Free Fund. It trades about 0.08 of its potential returns per unit of risk. California Tax Free Fund is currently generating about 0.04 per unit of risk. If you would invest  1,139  in Hunter Small Cap on September 29, 2024 and sell it today you would earn a total of  122.00  from holding Hunter Small Cap or generate 10.71% return on investment over 90 days.

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

Hunter Small Cap  vs.  California Tax Free Fund

Hunter Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hunter Small and California Tax

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

The idea behind Hunter Small Cap 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.