Correlation Between New York and Franklin Missouri

Can any of the company-specific risk be diversified away by investing in both New York and Franklin Missouri 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 New York and Franklin Missouri into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for New York and Franklin Missouri

0.89

Correlation Coefficient

New York  Franklin Missouri

Very poor diversification

The 3 months correlation between New and Franklin is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding New York Tax Free and Franklin Missouri Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Missouri Tax and New York 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 New York Tax Free are associated (or correlated) with Franklin Missouri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Missouri Tax has no effect on the direction of New York i.e., New York and Franklin Missouri go up and down completely randomly.

Pair Corralation between New York and Franklin Missouri

Assuming the 90 days horizon New York Tax Free is expected to generate 1.04 times more return on investment than Franklin Missouri. However, New York is 1.04 times more volatile than Franklin Missouri Tax Free. It trades about -0.06 of its potential returns per unit of risk. Franklin Missouri Tax Free is currently generating about -0.07 per unit of risk. If you would invest  1,067  in New York Tax Free on December 28, 2024 and sell it today you would lose (11.00) from holding New York Tax Free or give up 1.03% of portfolio value over 90 days.

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

New York Tax Free  vs.  Franklin Missouri Tax Free

New York Tax

Risk-Adjusted Performance

Very Weak

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

Franklin Missouri Tax

Risk-Adjusted Performance

Very Weak

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

Pair Trading with New York and Franklin Missouri

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

The idea behind New York Tax Free and Franklin Missouri Tax Free 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.