Correlation Between Tax-managed and Growth Opportunities

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

Diversification Opportunities for Tax-managed and Growth Opportunities

0.83

Correlation Coefficient

Tax-managed  Growth Opportunities

Very poor diversification

The 3 months correlation between Tax-managed and Growth is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Mid Small and Growth Opportunities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Opportunities 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 Growth Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Opportunities has no effect on the direction of Tax-managed i.e., Tax-managed and Growth Opportunities go up and down completely randomly.

Pair Corralation between Tax-managed and Growth Opportunities

Assuming the 90 days horizon Tax-managed is expected to generate 1.79 times less return on investment than Growth Opportunities. In addition to that, Tax-managed is 1.07 times more volatile than Growth Opportunities Fund. It trades about 0.04 of its total potential returns per unit of risk. Growth Opportunities Fund is currently generating about 0.09 per unit of volatility. If you would invest  4,058  in Growth Opportunities Fund on October 22, 2024 and sell it today you would earn a total of  1,575  from holding Growth Opportunities Fund or generate 38.81% 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.  Growth Opportunities Fund

Tax Managed Mid

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed Mid Small are ranked lower than 1 (%) 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.

Growth Opportunities

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Tax Managed Mid Small and Growth Opportunities 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.