Correlation Between Income Stock and Tax Exempt

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

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

Diversification Opportunities for Income Stock and Tax Exempt

0.61

Correlation Coefficient

Income Stock  Tax Exempt

Poor diversification

The 3 months correlation between Income and Tax is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Income Stock Fund and Tax Exempt Intermediate Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Intermediate and Income Stock 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 Income Stock 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 Intermediate has no effect on the direction of Income Stock i.e., Income Stock and Tax Exempt go up and down completely randomly.

Pair Corralation between Income Stock and Tax Exempt

Assuming the 90 days horizon Income Stock Fund is expected to generate 3.5 times more return on investment than Tax Exempt. However, Income Stock is 3.5 times more volatile than Tax Exempt Intermediate Term. It trades about 0.05 of its potential returns per unit of risk. Tax Exempt Intermediate Term is currently generating about 0.03 per unit of risk. If you would invest  1,765  in Income Stock Fund on December 27, 2024 and sell it today you would earn a total of  33.00  from holding Income Stock Fund or generate 1.87% return on investment over 90 days.

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

Income Stock Fund  vs.  Tax Exempt Intermediate Term

Income Stock

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Income Stock Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Income Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tax Exempt Intermediate

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Intermediate Term are ranked lower than 2 (%) 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.

Pair Trading with Income Stock and Tax Exempt

The main advantage of trading using opposite Income Stock and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Stock 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 Income Stock Fund and Tax Exempt Intermediate 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.