Correlation Between North Carolina and Tennessee Tax

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

Diversification Opportunities for North Carolina and Tennessee Tax

0.8

Correlation Coefficient

North Carolina  Tennessee Tax

Very poor diversification

The 3 months correlation between North and Tennessee is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding North Carolina Tax Free and Tennessee Tax Free Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tennessee 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 Tennessee Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tennessee Tax Free has no effect on the direction of North Carolina i.e., North Carolina and Tennessee Tax go up and down completely randomly.

Pair Corralation between North Carolina and Tennessee Tax

Assuming the 90 days horizon North Carolina is expected to generate 1.51 times less return on investment than Tennessee Tax. In addition to that, North Carolina is 1.25 times more volatile than Tennessee Tax Free Income. It trades about 0.03 of its total potential returns per unit of risk. Tennessee Tax Free Income is currently generating about 0.06 per unit of volatility. If you would invest  1,006  in Tennessee Tax Free Income on September 12, 2024 and sell it today you would earn a total of  63.00  from holding Tennessee Tax Free Income or generate 6.26% return on investment over 90 days.

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

North Carolina Tax Free  vs.  Tennessee Tax Free Income

North Carolina Tax

Risk-Adjusted Performance

3 of 100

Insignificant

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

Tennessee Tax Free

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tennessee Tax Free Income are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Tennessee Tax 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 Tennessee Tax

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

The idea behind North Carolina Tax Free and Tennessee 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.