Correlation Between Maryland Tax-free and Short-term Income

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

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

Diversification Opportunities for Maryland Tax-free and Short-term Income

0.25

Correlation Coefficient

Maryland Tax-free  Short-term Income

Modest diversification

The 3 months correlation between Maryland and Short-term is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Maryland Tax Free Bond and Short Term Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Income and Maryland 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 Maryland Tax Free Bond are associated (or correlated) with Short-term Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Income has no effect on the direction of Maryland Tax-free i.e., Maryland Tax-free and Short-term Income go up and down completely randomly.

Pair Corralation between Maryland Tax-free and Short-term Income

Assuming the 90 days horizon Maryland Tax Free Bond is expected to under-perform the Short-term Income. In addition to that, Maryland Tax-free is 2.24 times more volatile than Short Term Income Fund. It trades about -0.07 of its total potential returns per unit of risk. Short Term Income Fund is currently generating about 0.17 per unit of volatility. If you would invest  1,194  in Short Term Income Fund on December 31, 2024 and sell it today you would earn a total of  13.00  from holding Short Term Income Fund or generate 1.09% return on investment over 90 days.

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

Maryland Tax Free Bond  vs.  Short Term Income Fund

Maryland Tax Free

Risk-Adjusted Performance

Very Weak

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

Short Term Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Income Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Short-term Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Maryland Tax-free and Short-term Income

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

The idea behind Maryland Tax Free Bond and Short Term Income 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.