Correlation Between Nasdaq-100(r) and Tax Exempt

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Tax Exempt 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 Nasdaq-100(r) and Tax Exempt into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 2x Strategy and Tax Exempt Bond, you can compare the effects of market volatilities on Nasdaq-100(r) and Tax Exempt 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 Nasdaq-100(r) with a short position of Tax Exempt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Tax Exempt.

Diversification Opportunities for Nasdaq-100(r) and Tax Exempt

0.24

Correlation Coefficient

Nasdaq-100(r)  Tax Exempt

Modest diversification

The 3 months correlation between Nasdaq-100(r) and Tax is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Tax Exempt Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond and Nasdaq-100(r) 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 Nasdaq 100 2x Strategy are associated (or correlated) with Tax Exempt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Tax Exempt go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Tax Exempt

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to under-perform the Tax Exempt. In addition to that, Nasdaq-100(r) is 12.56 times more volatile than Tax Exempt Bond. It trades about -0.27 of its total potential returns per unit of risk. Tax Exempt Bond is currently generating about -0.03 per unit of volatility. If you would invest  1,243  in Tax Exempt Bond on December 7, 2024 and sell it today you would lose (2.00) from holding Tax Exempt Bond or give up 0.16% of portfolio value over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Tax Exempt Bond

Nasdaq 100 2x

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 2x Strategy 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 fundamental 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.

Tax Exempt Bond

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tax Exempt Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Tax Exempt is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq-100(r) and Tax Exempt

The main advantage of trading using opposite Nasdaq-100(r) and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100(r) position performs unexpectedly, Tax Exempt 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 Tax Exempt will offset losses from the drop in Tax Exempt's long position.

The idea behind Nasdaq 100 2x Strategy and Tax Exempt 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.