Correlation Between Nuveen High and Tax-exempt High

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

By analyzing existing cross correlation between Nuveen High Yield and Tax Exempt High Yield, you can compare the effects of market volatilities on Nuveen High and Tax-exempt High 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 Nuveen High with a short position of Tax-exempt High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nuveen High and Tax-exempt High.

Diversification Opportunities for Nuveen High and Tax-exempt High

0.97

Correlation Coefficient

Nuveen High  Tax-exempt High

Almost no diversification

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

Pair Corralation between Nuveen High and Tax-exempt High

Assuming the 90 days horizon Nuveen High Yield is expected to generate 1.22 times more return on investment than Tax-exempt High. However, Nuveen High is 1.22 times more volatile than Tax Exempt High Yield. It trades about -0.03 of its potential returns per unit of risk. Tax Exempt High Yield is currently generating about -0.04 per unit of risk. If you would invest  1,485  in Nuveen High Yield on October 24, 2024 and sell it today you would lose (15.00) from holding Nuveen High Yield or give up 1.01% of portfolio value over 90 days.

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

Nuveen High Yield  vs.  Tax Exempt High Yield

Nuveen High Yield

Risk-Adjusted Performance

3 of 100

Insignificant

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

Tax Exempt High

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Nuveen High and Tax-exempt High

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

The idea behind Nuveen High Yield and Tax Exempt High Yield 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.