Correlation Between Tax Exempt and Europac Gold

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

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

Diversification Opportunities for Tax Exempt and Europac Gold

0.7

Correlation Coefficient

Tax Exempt  Europac Gold

Poor diversification

The 3 months correlation between Tax and Europac is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Intermediate Term and Europac Gold Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europac Gold and Tax Exempt 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 Tax Exempt Intermediate Term are associated (or correlated) with Europac Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europac Gold has no effect on the direction of Tax Exempt i.e., Tax Exempt and Europac Gold go up and down completely randomly.

Pair Corralation between Tax Exempt and Europac Gold

Assuming the 90 days horizon Tax Exempt is expected to generate 23.4 times less return on investment than Europac Gold. But when comparing it to its historical volatility, Tax Exempt Intermediate Term is 8.17 times less risky than Europac Gold. It trades about 0.09 of its potential returns per unit of risk. Europac Gold Fund is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  919.00  in Europac Gold Fund on December 19, 2024 and sell it today you would earn a total of  248.00  from holding Europac Gold Fund or generate 26.99% return on investment over 90 days.

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

Tax Exempt Intermediate Term  vs.  Europac Gold Fund

Tax Exempt Intermediate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Intermediate Term are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax Exempt is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Europac Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Europac Gold Fund are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Europac Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tax Exempt and Europac Gold

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

The idea behind Tax Exempt Intermediate Term and Europac Gold Fund 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.