Correlation Between Tax-exempt Bond and Russell Investment

Can any of the company-specific risk be diversified away by investing in both Tax-exempt Bond and Russell Investment 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 Russell Investment 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 Russell Investment Tax Managed, you can compare the effects of market volatilities on Tax-exempt Bond and Russell Investment 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 Russell Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-exempt Bond and Russell Investment.

Diversification Opportunities for Tax-exempt Bond and Russell Investment

0.4

Correlation Coefficient

Tax-exempt Bond  Russell Investment

Very weak diversification

The 3 months correlation between Tax-exempt and Russell is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond Fund and Russell Investment Tax Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell Investment Tax 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 Russell Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell Investment Tax has no effect on the direction of Tax-exempt Bond i.e., Tax-exempt Bond and Russell Investment go up and down completely randomly.

Pair Corralation between Tax-exempt Bond and Russell Investment

Assuming the 90 days horizon Tax-exempt Bond is expected to generate 1.52 times less return on investment than Russell Investment. But when comparing it to its historical volatility, Tax Exempt Bond Fund is 4.93 times less risky than Russell Investment. It trades about 0.09 of its potential returns per unit of risk. Russell Investment Tax Managed is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,205  in Russell Investment Tax Managed on December 23, 2024 and sell it today you would earn a total of  14.00  from holding Russell Investment Tax Managed or generate 1.16% return on investment over 90 days.

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

Tax Exempt Bond Fund  vs.  Russell Investment Tax Managed

Tax Exempt Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Bond Fund are ranked lower than 7 (%) 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.

Russell Investment Tax

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Russell Investment Tax Managed are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Russell Investment 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 Russell Investment

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

The idea behind Tax Exempt Bond Fund and Russell Investment Tax Managed 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.