Correlation Between Tax Free and Goldman Sachs

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

Diversification Opportunities for Tax Free and Goldman Sachs

-0.04

Correlation Coefficient

Tax Free  Goldman Sachs

Good diversification

The 3 months correlation between Tax and Goldman is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Tax Free Conservative Income and Goldman Sachs Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Short 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Short has no effect on the direction of Tax Free i.e., Tax Free and Goldman Sachs go up and down completely randomly.

Pair Corralation between Tax Free and Goldman Sachs

Assuming the 90 days horizon Tax Free is expected to generate 1.76 times less return on investment than Goldman Sachs. But when comparing it to its historical volatility, Tax Free Conservative Income is 2.24 times less risky than Goldman Sachs. It trades about 0.19 of its potential returns per unit of risk. Goldman Sachs Short is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  946.00  in Goldman Sachs Short on September 30, 2024 and sell it today you would earn a total of  22.00  from holding Goldman Sachs Short or generate 2.33% return on investment over 90 days.

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

Tax Free Conservative Income  vs.  Goldman Sachs Short

Tax Free Conservative

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Free Conservative Income are ranked lower than 9 (%) 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.

Goldman Sachs Short

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goldman Sachs Short has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Goldman Sachs 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 Free and Goldman Sachs

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

The idea behind Tax Free Conservative Income and Goldman Sachs Short 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.