Correlation Between Liberty All and Tax Managed

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

By analyzing existing cross correlation between Liberty All Star and Tax Managed Mid Small, you can compare the effects of market volatilities on Liberty All and Tax Managed 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 Liberty All with a short position of Tax Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liberty All and Tax Managed.

Diversification Opportunities for Liberty All and Tax Managed

0.85

Correlation Coefficient

Liberty All  Tax Managed

Very poor diversification

The 3 months correlation between Liberty and Tax is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Liberty All Star and Tax Managed Mid Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Managed Mid and Liberty All 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 Liberty All Star are associated (or correlated) with Tax Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Managed Mid has no effect on the direction of Liberty All i.e., Liberty All and Tax Managed go up and down completely randomly.

Pair Corralation between Liberty All and Tax Managed

Considering the 90-day investment horizon Liberty All Star is expected to generate 0.86 times more return on investment than Tax Managed. However, Liberty All Star is 1.16 times less risky than Tax Managed. It trades about -0.05 of its potential returns per unit of risk. Tax Managed Mid Small is currently generating about -0.13 per unit of risk. If you would invest  686.00  in Liberty All Star on December 23, 2024 and sell it today you would lose (22.00) from holding Liberty All Star or give up 3.21% of portfolio value over 90 days.

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

Liberty All Star  vs.  Tax Managed Mid Small

Liberty All Star

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liberty All Star has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, Liberty All is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tax Managed Mid

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Liberty All and Tax Managed

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

The idea behind Liberty All Star and Tax Managed Mid Small 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.