Correlation Between Near-term Tax and World Precious

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

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

Diversification Opportunities for Near-term Tax and World Precious

0.76

Correlation Coefficient

Near-term Tax  World Precious

Poor diversification

The 3 months correlation between Near-term and World is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Near Term Tax Free and World Precious Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Precious Minerals and Near-term 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 Near Term Tax Free are associated (or correlated) with World Precious. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Precious Minerals has no effect on the direction of Near-term Tax i.e., Near-term Tax and World Precious go up and down completely randomly.

Pair Corralation between Near-term Tax and World Precious

Assuming the 90 days horizon Near-term Tax is expected to generate 21.25 times less return on investment than World Precious. But when comparing it to its historical volatility, Near Term Tax Free is 9.55 times less risky than World Precious. It trades about 0.05 of its potential returns per unit of risk. World Precious Minerals is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  149.00  in World Precious Minerals on December 1, 2024 and sell it today you would earn a total of  15.00  from holding World Precious Minerals or generate 10.07% return on investment over 90 days.

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

Near Term Tax Free  vs.  World Precious Minerals

Near Term Tax

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Near Term Tax Free are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Near-term Tax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

World Precious Minerals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in World Precious Minerals are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, World Precious may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Near-term Tax and World Precious

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

The idea behind Near Term Tax Free and World Precious Minerals 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.