Correlation Between Tax Free and Miller Opportunity

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

Diversification Opportunities for Tax Free and Miller Opportunity

0.89

Correlation Coefficient

Tax Free  Miller Opportunity

Very poor diversification

The 3 months correlation between Tax and Miller is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Tax Free Conservative Income and Miller Opportunity Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Miller Opportunity Trust 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 Miller Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Miller Opportunity Trust has no effect on the direction of Tax Free i.e., Tax Free and Miller Opportunity go up and down completely randomly.

Pair Corralation between Tax Free and Miller Opportunity

Assuming the 90 days horizon Tax Free is expected to generate 10.23 times less return on investment than Miller Opportunity. But when comparing it to its historical volatility, Tax Free Conservative Income is 21.46 times less risky than Miller Opportunity. It trades about 0.22 of its potential returns per unit of risk. Miller Opportunity Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,595  in Miller Opportunity Trust on September 12, 2024 and sell it today you would earn a total of  1,361  from holding Miller Opportunity Trust or generate 52.45% return on investment over 90 days.

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

Tax Free Conservative Income  vs.  Miller Opportunity Trust

Tax Free Conservative

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Free Conservative Income are ranked lower than 16 (%) 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.

Miller Opportunity Trust

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Miller Opportunity Trust are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Miller Opportunity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tax Free and Miller Opportunity

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

The idea behind Tax Free Conservative Income and Miller Opportunity Trust 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.