Correlation Between Ultra Short and Tax-exempt Bond

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

By analyzing existing cross correlation between Ultra Short Fixed Income and Tax Exempt Bond Fund, you can compare the effects of market volatilities on Ultra Short and Tax-exempt Bond 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 Ultra Short with a short position of Tax-exempt Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Short and Tax-exempt Bond.

Diversification Opportunities for Ultra Short and Tax-exempt Bond

-0.17

Correlation Coefficient

Ultra Short  Tax-exempt Bond

Good diversification

The 3 months correlation between Ultra and Tax-exempt is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Fixed Income and Tax Exempt Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond and Ultra Short 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 Ultra Short Fixed Income are associated (or correlated) with Tax-exempt Bond. 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 Ultra Short i.e., Ultra Short and Tax-exempt Bond go up and down completely randomly.

Pair Corralation between Ultra Short and Tax-exempt Bond

If you would invest  2,166  in Tax Exempt Bond Fund on October 24, 2024 and sell it today you would earn a total of  5.00  from holding Tax Exempt Bond Fund or generate 0.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Ultra Short Fixed Income  vs.  Tax Exempt Bond Fund

Ultra Short Fixed

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Fixed Income are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Ultra Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tax Exempt Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ultra Short and Tax-exempt Bond

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

The idea behind Ultra Short Fixed Income and Tax Exempt Bond 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 CEOs Directory module to screen CEOs from public companies around the world.