Correlation Between North Carolina and Kentucky Tax-free

Can any of the company-specific risk be diversified away by investing in both North Carolina 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 North Carolina 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 North Carolina Tax Free and Kentucky Tax Free Income, you can compare the effects of market volatilities on North Carolina 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 North Carolina with a short position of Kentucky Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Carolina and Kentucky Tax-free.

Diversification Opportunities for North Carolina and Kentucky Tax-free

0.93

Correlation Coefficient

North Carolina  Kentucky Tax-free

Almost no diversification

The 3 months correlation between North and Kentucky is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding North Carolina Tax Free 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 North Carolina 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 North Carolina Tax Free 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 North Carolina i.e., North Carolina and Kentucky Tax-free go up and down completely randomly.

Pair Corralation between North Carolina and Kentucky Tax-free

Assuming the 90 days horizon North Carolina Tax Free is expected to under-perform the Kentucky Tax-free. But the mutual fund apears to be less risky and, when comparing its historical volatility, North Carolina Tax Free is 1.14 times less risky than Kentucky Tax-free. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Kentucky Tax Free Income is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  725.00  in Kentucky Tax Free Income on December 2, 2024 and sell it today you would lose (1.00) from holding Kentucky Tax Free Income or give up 0.14% of portfolio value over 90 days.

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

North Carolina Tax Free  vs.  Kentucky Tax Free Income

North Carolina Tax

Risk-Adjusted Performance

Very Weak

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

The main advantage of trading using opposite North Carolina and Kentucky Tax-free positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North Carolina 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 North Carolina Tax Free 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.