Correlation Between Tax-exempt Bond and Live Oak

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

Diversification Opportunities for Tax-exempt Bond and Live Oak

0.66

Correlation Coefficient

Tax-exempt Bond  Live Oak

Poor diversification

The 3 months correlation between Tax-exempt and Live is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond Fund and Live Oak Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Oak Health 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 Live Oak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Oak Health has no effect on the direction of Tax-exempt Bond i.e., Tax-exempt Bond and Live Oak go up and down completely randomly.

Pair Corralation between Tax-exempt Bond and Live Oak

Assuming the 90 days horizon Tax Exempt Bond Fund is expected to under-perform the Live Oak. But the mutual fund apears to be less risky and, when comparing its historical volatility, Tax Exempt Bond Fund is 4.69 times less risky than Live Oak. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Live Oak Health is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,070  in Live Oak Health on December 18, 2024 and sell it today you would earn a total of  24.00  from holding Live Oak Health or generate 1.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Tax Exempt Bond Fund  vs.  Live Oak Health

Tax Exempt Bond

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tax Exempt Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental 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.

Live Oak Health

Risk-Adjusted Performance

Weak

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

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

The idea behind Tax Exempt Bond Fund and Live Oak Health 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.