Correlation Between Tax Managed and Quantitative

Can any of the company-specific risk be diversified away by investing in both Tax Managed and Quantitative 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 Quantitative into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tax Managed Mid Small and Quantitative Longshort Equity, you can compare the effects of market volatilities on Tax Managed and Quantitative 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 Quantitative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Managed and Quantitative.

Diversification Opportunities for Tax Managed and Quantitative

0.81

Correlation Coefficient

Tax Managed  Quantitative

Very poor diversification

The 3 months correlation between Tax and Quantitative is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Mid Small and Quantitative Longshort Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative Longshort 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 Mid Small are associated (or correlated) with Quantitative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative Longshort has no effect on the direction of Tax Managed i.e., Tax Managed and Quantitative go up and down completely randomly.

Pair Corralation between Tax Managed and Quantitative

Assuming the 90 days horizon Tax Managed Mid Small is expected to generate 1.7 times more return on investment than Quantitative. However, Tax Managed is 1.7 times more volatile than Quantitative Longshort Equity. It trades about 0.04 of its potential returns per unit of risk. Quantitative Longshort Equity is currently generating about 0.03 per unit of risk. If you would invest  3,812  in Tax Managed Mid Small on October 6, 2024 and sell it today you would earn a total of  336.00  from holding Tax Managed Mid Small or generate 8.81% return on investment over 90 days.

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

Tax Managed Mid Small  vs.  Quantitative Longshort Equity

Tax Managed Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tax Managed Mid Small 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.

Quantitative Longshort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quantitative Longshort Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Quantitative 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 Quantitative

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

The idea behind Tax Managed Mid Small and Quantitative Longshort Equity 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.