Correlation Between Tax-managed and Rational Strategic

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

Diversification Opportunities for Tax-managed and Rational Strategic

0.98

Correlation Coefficient

Tax-managed  Rational Strategic

Almost no diversification

The 3 months correlation between Tax-managed and Rational is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Rational Strategic Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Strategic 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 Rational Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Strategic has no effect on the direction of Tax-managed i.e., Tax-managed and Rational Strategic go up and down completely randomly.

Pair Corralation between Tax-managed and Rational Strategic

Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 0.51 times more return on investment than Rational Strategic. However, Tax Managed Large Cap is 1.96 times less risky than Rational Strategic. It trades about -0.07 of its potential returns per unit of risk. Rational Strategic Allocation is currently generating about -0.13 per unit of risk. If you would invest  8,547  in Tax Managed Large Cap on December 24, 2024 and sell it today you would lose (378.00) from holding Tax Managed Large Cap or give up 4.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Tax Managed Large Cap  vs.  Rational Strategic Allocation

Tax Managed Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tax Managed Large Cap has generated negative risk-adjusted returns adding no value to fund investors. 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.

Rational Strategic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Strategic Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Tax-managed and Rational Strategic

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

The idea behind Tax Managed Large Cap and Rational Strategic Allocation 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 Transaction History module to view history of all your transactions and understand their impact on performance.