Correlation Between Tax-managed and Intermediate Government

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

Diversification Opportunities for Tax-managed and Intermediate Government

0.22

Correlation Coefficient

Tax-managed  Intermediate Government

Modest diversification

The 3 months correlation between Tax-managed and Intermediate is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Intermediate Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Government 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 Intermediate Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Government has no effect on the direction of Tax-managed i.e., Tax-managed and Intermediate Government go up and down completely randomly.

Pair Corralation between Tax-managed and Intermediate Government

Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 10.89 times more return on investment than Intermediate Government. However, Tax-managed is 10.89 times more volatile than Intermediate Government Bond. It trades about 0.04 of its potential returns per unit of risk. Intermediate Government Bond is currently generating about 0.13 per unit of risk. If you would invest  7,433  in Tax Managed Large Cap on October 4, 2024 and sell it today you would earn a total of  285.00  from holding Tax Managed Large Cap or generate 3.83% return on investment over 90 days.

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

Tax Managed Large Cap  vs.  Intermediate Government Bond

Tax Managed Large

Risk-Adjusted Performance

2 of 100

Weak

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 fundamental indicators, Tax-managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Intermediate Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Government Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Intermediate Government 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 Intermediate Government

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

The idea behind Tax Managed Large Cap and Intermediate Government Bond 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.