Correlation Between Kentucky Tax and Hawaii Municipal

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

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

Diversification Opportunities for Kentucky Tax and Hawaii Municipal

0.97

Correlation Coefficient

Kentucky Tax  Hawaii Municipal

Almost no diversification

The 3 months correlation between Kentucky and Hawaii is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Kentucky Tax Free Income and Hawaii Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaii Municipal Bond and Kentucky 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 Kentucky Tax Free Income are associated (or correlated) with Hawaii Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaii Municipal Bond has no effect on the direction of Kentucky Tax i.e., Kentucky Tax and Hawaii Municipal go up and down completely randomly.

Pair Corralation between Kentucky Tax and Hawaii Municipal

Assuming the 90 days horizon Kentucky Tax Free Income is expected to under-perform the Hawaii Municipal. In addition to that, Kentucky Tax is 1.55 times more volatile than Hawaii Municipal Bond. It trades about -0.29 of its total potential returns per unit of risk. Hawaii Municipal Bond is currently generating about -0.35 per unit of volatility. If you would invest  999.00  in Hawaii Municipal Bond on October 9, 2024 and sell it today you would lose (12.00) from holding Hawaii Municipal Bond or give up 1.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.0%
Values	Daily Returns

Kentucky Tax Free Income  vs.  Hawaii Municipal Bond

Kentucky Tax Free

Risk-Adjusted Performance

0 of 100

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 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hawaii Municipal Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Kentucky Tax and Hawaii Municipal

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

The idea behind Kentucky Tax Free Income and Hawaii Municipal Bond 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.