Correlation Between Tax Free and Sterling Capital

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

By analyzing existing cross correlation between Tax Free Conservative Income and Sterling Capital Special, you can compare the effects of market volatilities on Tax Free and Sterling Capital 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 Free with a short position of Sterling Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Free and Sterling Capital.

Diversification Opportunities for Tax Free and Sterling Capital

-0.36

Correlation Coefficient

Tax Free  Sterling Capital

Very good diversification

The 3 months correlation between Tax and Sterling is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Tax Free Conservative Income and Sterling Capital Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Special and 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 Tax Free Conservative Income are associated (or correlated) with Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Special has no effect on the direction of Tax Free i.e., Tax Free and Sterling Capital go up and down completely randomly.

Pair Corralation between Tax Free and Sterling Capital

Assuming the 90 days horizon Tax Free Conservative Income is expected to generate 0.0 times more return on investment than Sterling Capital. However, Tax Free Conservative Income is 227.09 times less risky than Sterling Capital. It trades about -0.23 of its potential returns per unit of risk. Sterling Capital Special is currently generating about -0.25 per unit of risk. If you would invest  1,001  in Tax Free Conservative Income on October 9, 2024 and sell it today you would lose (1.00) from holding Tax Free Conservative Income or give up 0.1% of portfolio value over 90 days.

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

Tax Free Conservative Income  vs.  Sterling Capital Special

Tax Free Conservative

Risk-Adjusted Performance

13 of 100

Good

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

Sterling Capital Special

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Capital Special has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Tax Free and Sterling Capital

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

The idea behind Tax Free Conservative Income and Sterling Capital Special 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .