Correlation Between Tax Exempt and Via Renewables

Can any of the company-specific risk be diversified away by investing in both Tax Exempt and Via Renewables 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 Via Renewables 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 Via Renewables, you can compare the effects of market volatilities on Tax Exempt and Via Renewables 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 Via Renewables. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Via Renewables.

Diversification Opportunities for Tax Exempt and Via Renewables

0.28

Correlation Coefficient

Tax Exempt  Via Renewables

Modest diversification

The 3 months correlation between Tax and Via is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and Via Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Via Renewables 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 Via Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Via Renewables has no effect on the direction of Tax Exempt i.e., Tax Exempt and Via Renewables go up and down completely randomly.

Pair Corralation between Tax Exempt and Via Renewables

Assuming the 90 days horizon Tax Exempt Bond is expected to under-perform the Via Renewables. But the mutual fund apears to be less risky and, when comparing its historical volatility, Tax Exempt Bond is 3.33 times less risky than Via Renewables. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Via Renewables is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,286  in Via Renewables on December 27, 2024 and sell it today you would earn a total of  127.00  from holding Via Renewables or generate 5.56% return on investment over 90 days.

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

Tax Exempt Bond  vs.  Via Renewables

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 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.

Via Renewables

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Via Renewables are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Via Renewables is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Tax Exempt and Via Renewables

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

The idea behind Tax Exempt Bond and Via Renewables 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.