Correlation Between California Tax-free and Champlain Small

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

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

Diversification Opportunities for California Tax-free and Champlain Small

0.44

Correlation Coefficient

California Tax-free  Champlain Small

Very weak diversification

The 3 months correlation between California and Champlain is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding California Tax Free Fund and Champlain Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champlain Small and California Tax-free 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 California Tax Free Fund are associated (or correlated) with Champlain Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champlain Small has no effect on the direction of California Tax-free i.e., California Tax-free and Champlain Small go up and down completely randomly.

Pair Corralation between California Tax-free and Champlain Small

Assuming the 90 days horizon California Tax Free Fund is expected to generate 0.1 times more return on investment than Champlain Small. However, California Tax Free Fund is 10.49 times less risky than Champlain Small. It trades about -0.32 of its potential returns per unit of risk. Champlain Small is currently generating about -0.23 per unit of risk. If you would invest  1,075  in California Tax Free Fund on October 8, 2024 and sell it today you would lose (16.00) from holding California Tax Free Fund or give up 1.49% of portfolio value over 90 days.

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

California Tax Free Fund  vs.  Champlain Small

California Tax Free

Risk-Adjusted Performance

0 of 100

Very Weak

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

Champlain Small

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Champlain 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, Champlain Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with California Tax-free and Champlain Small

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

The idea behind California Tax Free Fund and Champlain Small 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.