Correlation Between Nasdaq-100 Index and Tax Exempt

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100 Index and Tax Exempt 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 Nasdaq-100 Index and Tax Exempt into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 Index Fund and Tax Exempt Bond, you can compare the effects of market volatilities on Nasdaq-100 Index and Tax Exempt 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 Nasdaq-100 Index with a short position of Tax Exempt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100 Index and Tax Exempt.

Diversification Opportunities for Nasdaq-100 Index and Tax Exempt

-0.09

Correlation Coefficient

Nasdaq-100 Index  Tax Exempt

Good diversification

The 3 months correlation between Nasdaq-100 and Tax is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Index Fund and Tax Exempt Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond and Nasdaq-100 Index 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 Nasdaq 100 Index Fund are associated (or correlated) with Tax Exempt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of Nasdaq-100 Index i.e., Nasdaq-100 Index and Tax Exempt go up and down completely randomly.

Pair Corralation between Nasdaq-100 Index and Tax Exempt

Assuming the 90 days horizon Nasdaq 100 Index Fund is expected to under-perform the Tax Exempt. In addition to that, Nasdaq-100 Index is 6.37 times more volatile than Tax Exempt Bond. It trades about -0.07 of its total potential returns per unit of risk. Tax Exempt Bond is currently generating about -0.04 per unit of volatility. If you would invest  1,227  in Tax Exempt Bond on December 28, 2024 and sell it today you would lose (6.00) from holding Tax Exempt Bond or give up 0.49% of portfolio value over 90 days.

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

Nasdaq 100 Index Fund  vs.  Tax Exempt Bond

Nasdaq 100 Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 Index Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Tax Exempt Bond

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Nasdaq-100 Index and Tax Exempt

The main advantage of trading using opposite Nasdaq-100 Index and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100 Index position performs unexpectedly, Tax Exempt 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 Tax Exempt will offset losses from the drop in Tax Exempt's long position.

The idea behind Nasdaq 100 Index Fund and Tax Exempt Bond 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.