Correlation Between Tax-exempt Fund and Capital World

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

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

Diversification Opportunities for Tax-exempt Fund and Capital World

0.61

Correlation Coefficient

Tax-exempt Fund  Capital World

Poor diversification

The 3 months correlation between Tax-exempt and Capital is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Fund Of and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond and Tax-exempt Fund 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 Fund Of are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Bond has no effect on the direction of Tax-exempt Fund i.e., Tax-exempt Fund and Capital World go up and down completely randomly.

Pair Corralation between Tax-exempt Fund and Capital World

Assuming the 90 days horizon Tax Exempt Fund Of is expected to generate 0.68 times more return on investment than Capital World. However, Tax Exempt Fund Of is 1.47 times less risky than Capital World. It trades about 0.05 of its potential returns per unit of risk. Capital World Bond is currently generating about -0.11 per unit of risk. If you would invest  1,679  in Tax Exempt Fund Of on August 31, 2024 and sell it today you would earn a total of  13.00  from holding Tax Exempt Fund Of or generate 0.77% return on investment over 90 days.

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

Tax Exempt Fund Of  vs.  Capital World Bond

Tax Exempt Fund

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Fund Of are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Tax-exempt Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Capital World Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital World Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Capital World 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 Fund and Capital World

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

The idea behind Tax Exempt Fund Of and Capital World Bond 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.