Correlation Between Intermediate-term and Us Small

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

By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Us Small Cap, you can compare the effects of market volatilities on Intermediate-term and Us Small 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 Intermediate-term with a short position of Us Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Us Small.

Diversification Opportunities for Intermediate-term and Us Small

0.47

Correlation Coefficient

Intermediate-term  Us Small

Very weak diversification

The 3 months correlation between Intermediate-term and RLESX is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Us Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Small Cap and Intermediate-term 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 Intermediate Term Tax Free Bond are associated (or correlated) with Us Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Small Cap has no effect on the direction of Intermediate-term i.e., Intermediate-term and Us Small go up and down completely randomly.

Pair Corralation between Intermediate-term and Us Small

Assuming the 90 days horizon Intermediate Term Tax Free Bond is expected to generate 0.18 times more return on investment than Us Small. However, Intermediate Term Tax Free Bond is 5.55 times less risky than Us Small. It trades about 0.19 of its potential returns per unit of risk. Us Small Cap is currently generating about -0.26 per unit of risk. If you would invest  1,072  in Intermediate Term Tax Free Bond on December 2, 2024 and sell it today you would earn a total of  8.00  from holding Intermediate Term Tax Free Bond or generate 0.75% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  Us Small Cap

Intermediate Term Tax

Risk-Adjusted Performance

Very Weak

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

Us Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Us Small Cap 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Intermediate-term and Us Small

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

The idea behind Intermediate Term Tax Free Bond and Us Small Cap 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.