Correlation Between Tax Managed and Palmer Square

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

Diversification Opportunities for Tax Managed and Palmer Square

0.69

Correlation Coefficient

Tax Managed  Palmer Square

Poor diversification

The 3 months correlation between Tax and Palmer is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Palmer Square Ultra Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palmer Square Ultra 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 Palmer Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palmer Square Ultra has no effect on the direction of Tax Managed i.e., Tax Managed and Palmer Square go up and down completely randomly.

Pair Corralation between Tax Managed and Palmer Square

Assuming the 90 days horizon Tax Managed Large Cap is expected to under-perform the Palmer Square. In addition to that, Tax Managed is 3.17 times more volatile than Palmer Square Ultra Short. It trades about -0.17 of its total potential returns per unit of risk. Palmer Square Ultra Short is currently generating about -0.17 per unit of volatility. If you would invest  2,008  in Palmer Square Ultra Short on October 7, 2024 and sell it today you would lose (20.00) from holding Palmer Square Ultra Short or give up 1.0% of portfolio value over 90 days.

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

Tax Managed Large Cap  vs.  Palmer Square Ultra Short

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.

Palmer Square Ultra

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Palmer Square Ultra Short has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Palmer Square 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 Palmer Square

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

The idea behind Tax Managed Large Cap and Palmer Square Ultra Short 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.