Correlation Between Hawaiian Tax-free and Kentucky Tax-free

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

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

Diversification Opportunities for Hawaiian Tax-free and Kentucky Tax-free

0.97

Correlation Coefficient

Hawaiian Tax-free  Kentucky Tax-free

Almost no diversification

The 3 months correlation between Hawaiian and Kentucky is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Hawaiian Tax Free Trust and Kentucky Tax Free Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kentucky Tax Free and Hawaiian Tax-free 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 Hawaiian Tax Free Trust are associated (or correlated) with Kentucky 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 Kentucky Tax Free has no effect on the direction of Hawaiian Tax-free i.e., Hawaiian Tax-free and Kentucky Tax-free go up and down completely randomly.

Pair Corralation between Hawaiian Tax-free and Kentucky Tax-free

Assuming the 90 days horizon Hawaiian Tax Free Trust is expected to generate 0.67 times more return on investment than Kentucky Tax-free. However, Hawaiian Tax Free Trust is 1.5 times less risky than Kentucky Tax-free. It trades about -0.06 of its potential returns per unit of risk. Kentucky Tax Free Income is currently generating about -0.06 per unit of risk. If you would invest  1,043  in Hawaiian Tax Free Trust on December 28, 2024 and sell it today you would lose (7.00) from holding Hawaiian Tax Free Trust or give up 0.67% of portfolio value over 90 days.

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

Hawaiian Tax Free Trust  vs.  Kentucky Tax Free Income

Hawaiian Tax Free

Risk-Adjusted Performance

Very Weak

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

Kentucky Tax Free

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kentucky Tax Free Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Kentucky 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 Hawaiian Tax-free and Kentucky Tax-free

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

The idea behind Hawaiian Tax Free Trust and Kentucky Tax Free Income 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.