Correlation Between World Growth and Tax Exempt

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

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

Diversification Opportunities for World Growth and Tax Exempt

0.7

Correlation Coefficient

World Growth  Tax Exempt

Poor diversification

The 3 months correlation between World and Tax is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding World Growth Fund and Tax Exempt Long Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Long and World Growth 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 World Growth 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 Long has no effect on the direction of World Growth i.e., World Growth and Tax Exempt go up and down completely randomly.

Pair Corralation between World Growth and Tax Exempt

Assuming the 90 days horizon World Growth Fund is expected to under-perform the Tax Exempt. In addition to that, World Growth is 3.0 times more volatile than Tax Exempt Long Term. It trades about -0.14 of its total potential returns per unit of risk. Tax Exempt Long Term is currently generating about -0.06 per unit of volatility. If you would invest  1,236  in Tax Exempt Long Term on December 4, 2024 and sell it today you would lose (16.00) from holding Tax Exempt Long Term or give up 1.29% of portfolio value over 90 days.

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

World Growth Fund  vs.  Tax Exempt Long Term

World Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days World Growth 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 Long

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tax Exempt Long Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, 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 World Growth and Tax Exempt

The main advantage of trading using opposite World Growth and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Growth 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 World Growth Fund and Tax Exempt Long Term 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.