Correlation Between Tax-exempt Bond and Aam Select

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

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

Diversification Opportunities for Tax-exempt Bond and Aam Select

0.83

Correlation Coefficient

Tax-exempt Bond  Aam Select

Very poor diversification

The 3 months correlation between Tax-exempt and Aam is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond Fund and Aam Select Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aam Select Income and Tax-exempt Bond 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 Tax Exempt Bond Fund are associated (or correlated) with Aam Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aam Select Income has no effect on the direction of Tax-exempt Bond i.e., Tax-exempt Bond and Aam Select go up and down completely randomly.

Pair Corralation between Tax-exempt Bond and Aam Select

Assuming the 90 days horizon Tax-exempt Bond is expected to generate 7.91 times less return on investment than Aam Select. But when comparing it to its historical volatility, Tax Exempt Bond Fund is 1.8 times less risky than Aam Select. It trades about 0.02 of its potential returns per unit of risk. Aam Select Income is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  902.00  in Aam Select Income on December 29, 2024 and sell it today you would earn a total of  14.00  from holding Aam Select Income or generate 1.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Tax Exempt Bond Fund  vs.  Aam Select Income

Tax Exempt Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Bond Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-exempt Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aam Select Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aam Select Income are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Aam Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tax-exempt Bond and Aam Select

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

The idea behind Tax Exempt Bond Fund and Aam Select 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.