Correlation Between Tennessee Tax-free and Mississippi Tax

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

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

Diversification Opportunities for Tennessee Tax-free and Mississippi Tax

0.99

Correlation Coefficient

Tennessee Tax-free  Mississippi Tax

No risk reduction

The 3 months correlation between Tennessee and Mississippi is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Tennessee Tax Free Income and Mississippi Tax Free Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mississippi Tax Free and Tennessee 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 Tennessee Tax Free Income are associated (or correlated) with Mississippi Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mississippi Tax Free has no effect on the direction of Tennessee Tax-free i.e., Tennessee Tax-free and Mississippi Tax go up and down completely randomly.

Pair Corralation between Tennessee Tax-free and Mississippi Tax

Assuming the 90 days horizon Tennessee Tax Free Income is expected to under-perform the Mississippi Tax. In addition to that, Tennessee Tax-free is 1.23 times more volatile than Mississippi Tax Free Income. It trades about -0.03 of its total potential returns per unit of risk. Mississippi Tax Free Income is currently generating about -0.01 per unit of volatility. If you would invest  1,109  in Mississippi Tax Free Income on December 2, 2024 and sell it today you would lose (2.00) from holding Mississippi Tax Free Income or give up 0.18% of portfolio value over 90 days.

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

Tennessee Tax Free Income  vs.  Mississippi Tax Free Income

Tennessee Tax Free

Risk-Adjusted Performance

Very Weak

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

Mississippi Tax Free

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Tennessee Tax-free and Mississippi Tax

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

The idea behind Tennessee Tax Free Income and Mississippi Tax Free Income 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.