Correlation Between Stet California and Tax-free Conservative

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

By analyzing existing cross correlation between Stet California Municipal and Tax Free Conservative Income, you can compare the effects of market volatilities on Stet California and Tax-free Conservative 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 Stet California with a short position of Tax-free Conservative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stet California and Tax-free Conservative.

Diversification Opportunities for Stet California and Tax-free Conservative

0.63

Correlation Coefficient

Stet California  Tax-free Conservative

Poor diversification

The 3 months correlation between Stet and Tax-free is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Stet California Municipal and Tax Free Conservative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Free Conservative and Stet California 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 Stet California Municipal are associated (or correlated) with Tax-free Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Free Conservative has no effect on the direction of Stet California i.e., Stet California and Tax-free Conservative go up and down completely randomly.

Pair Corralation between Stet California and Tax-free Conservative

Assuming the 90 days horizon Stet California Municipal is expected to under-perform the Tax-free Conservative. In addition to that, Stet California is 2.7 times more volatile than Tax Free Conservative Income. It trades about -0.39 of its total potential returns per unit of risk. Tax Free Conservative Income is currently generating about 0.13 per unit of volatility. If you would invest  998.00  in Tax Free Conservative Income on December 27, 2024 and sell it today you would earn a total of  2.00  from holding Tax Free Conservative Income or generate 0.2% return on investment over 90 days.

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

Stet California Municipal  vs.  Tax Free Conservative Income

Stet California Municipal

Risk-Adjusted Performance

Very Weak

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

Tax Free Conservative

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Free Conservative Income are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-free Conservative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stet California and Tax-free Conservative

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

The idea behind Stet California Municipal and Tax Free Conservative Income 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.