Correlation Between Tax-managed and Growth Allocation

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

By analyzing existing cross correlation between Tax Managed Large Cap and Growth Allocation Index, you can compare the effects of market volatilities on Tax-managed and Growth Allocation 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-managed with a short position of Growth Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Growth Allocation.

Diversification Opportunities for Tax-managed and Growth Allocation

0.59

Correlation Coefficient

Tax-managed  Growth Allocation

Very weak diversification

The 3 months correlation between Tax-managed and Growth is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Growth Allocation Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Allocation Index and Tax-managed 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 Managed Large Cap are associated (or correlated) with Growth Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Allocation Index has no effect on the direction of Tax-managed i.e., Tax-managed and Growth Allocation go up and down completely randomly.

Pair Corralation between Tax-managed and Growth Allocation

Assuming the 90 days horizon Tax-managed is expected to generate 2.37 times less return on investment than Growth Allocation. In addition to that, Tax-managed is 1.34 times more volatile than Growth Allocation Index. It trades about 0.04 of its total potential returns per unit of risk. Growth Allocation Index is currently generating about 0.14 per unit of volatility. If you would invest  1,094  in Growth Allocation Index on October 24, 2024 and sell it today you would earn a total of  17.00  from holding Growth Allocation Index or generate 1.55% return on investment over 90 days.

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

Tax Managed Large Cap  vs.  Growth Allocation Index

Tax Managed Large

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed Large Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Growth Allocation Index

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Allocation Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Growth Allocation 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-managed and Growth Allocation

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

The idea behind Tax Managed Large Cap and Growth Allocation Index 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.