Correlation Between Tax Managed and Science Technology

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

Diversification Opportunities for Tax Managed and Science Technology

0.88

Correlation Coefficient

Tax Managed  Science Technology

Very poor diversification

The 3 months correlation between Tax and Science is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Science Technology Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Science Technology 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 Science Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Science Technology has no effect on the direction of Tax Managed i.e., Tax Managed and Science Technology go up and down completely randomly.

Pair Corralation between Tax Managed and Science Technology

Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 0.62 times more return on investment than Science Technology. However, Tax Managed Large Cap is 1.6 times less risky than Science Technology. It trades about -0.11 of its potential returns per unit of risk. Science Technology Fund is currently generating about -0.08 per unit of risk. If you would invest  8,667  in Tax Managed Large Cap on October 9, 2024 and sell it today you would lose (187.00) from holding Tax Managed Large Cap or give up 2.16% of portfolio value over 90 days.

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

Tax Managed Large Cap  vs.  Science Technology Fund

Tax Managed Large

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed Large Cap are ranked lower than 2 (%) 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.

Science Technology

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Science Technology Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Science Technology may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tax Managed and Science Technology

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

The idea behind Tax Managed Large Cap and Science Technology Fund 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.