Correlation Between Tax Exempt and Bridge Builder

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

By analyzing existing cross correlation between Tax Exempt Bond and Bridge Builder Municipal, you can compare the effects of market volatilities on Tax Exempt and Bridge Builder 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 Exempt with a short position of Bridge Builder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Bridge Builder.

Diversification Opportunities for Tax Exempt and Bridge Builder

0.93

Correlation Coefficient

Tax Exempt  Bridge Builder

Almost no diversification

The 3 months correlation between Tax and Bridge is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and Bridge Builder Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridge Builder Municipal and Tax Exempt 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 Exempt Bond are associated (or correlated) with Bridge Builder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridge Builder Municipal has no effect on the direction of Tax Exempt i.e., Tax Exempt and Bridge Builder go up and down completely randomly.

Pair Corralation between Tax Exempt and Bridge Builder

Assuming the 90 days horizon Tax Exempt Bond is expected to generate 1.22 times more return on investment than Bridge Builder. However, Tax Exempt is 1.22 times more volatile than Bridge Builder Municipal. It trades about 0.04 of its potential returns per unit of risk. Bridge Builder Municipal is currently generating about 0.03 per unit of risk. If you would invest  1,253  in Tax Exempt Bond on September 13, 2024 and sell it today you would earn a total of  7.00  from holding Tax Exempt Bond or generate 0.56% return on investment over 90 days.

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

Tax Exempt Bond  vs.  Bridge Builder Municipal

Tax Exempt Bond

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Bond are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong 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.

Bridge Builder Municipal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bridge Builder Municipal are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Bridge Builder 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 Exempt and Bridge Builder

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

The idea behind Tax Exempt Bond and Bridge Builder Municipal 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.