Correlation Between New York and New Jersey

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

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

Diversification Opportunities for New York and New Jersey

0.9

Correlation Coefficient

New York  New Jersey

Almost no diversification

The 3 months correlation between New and New is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding New York Tax Free and New Jersey Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Jersey Tax and New York 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 New York Tax Free are associated (or correlated) with New Jersey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Jersey Tax has no effect on the direction of New York i.e., New York and New Jersey go up and down completely randomly.

Pair Corralation between New York and New Jersey

Assuming the 90 days horizon New York Tax Free is expected to generate 1.17 times more return on investment than New Jersey. However, New York is 1.17 times more volatile than New Jersey Tax Free. It trades about 0.13 of its potential returns per unit of risk. New Jersey Tax Free is currently generating about 0.12 per unit of risk. If you would invest  1,075  in New York Tax Free on December 5, 2024 and sell it today you would earn a total of  7.00  from holding New York Tax Free or generate 0.65% return on investment over 90 days.

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

New York Tax Free  vs.  New Jersey Tax Free

New York Tax

Risk-Adjusted Performance

Very Weak

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

New Jersey Tax

Risk-Adjusted Performance

Very Weak

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

Pair Trading with New York and New Jersey

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

The idea behind New York Tax Free and New Jersey Tax Free 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.