Correlation Between Wilshire 5000 and Maryland Tax

Can any of the company-specific risk be diversified away by investing in both Wilshire 5000 and Maryland Tax 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 Wilshire 5000 and Maryland Tax into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wilshire 5000 Index and Maryland Tax Free Bond, you can compare the effects of market volatilities on Wilshire 5000 and Maryland Tax 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 Wilshire 5000 with a short position of Maryland Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wilshire 5000 and Maryland Tax.

Diversification Opportunities for Wilshire 5000 and Maryland Tax

0.76

Correlation Coefficient

Wilshire 5000  Maryland Tax

Poor diversification

The 3 months correlation between Wilshire and Maryland is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Wilshire 5000 Index and Maryland Tax Free Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maryland Tax Free and Wilshire 5000 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 Wilshire 5000 Index are associated (or correlated) with Maryland Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maryland Tax Free has no effect on the direction of Wilshire 5000 i.e., Wilshire 5000 and Maryland Tax go up and down completely randomly.

Pair Corralation between Wilshire 5000 and Maryland Tax

Assuming the 90 days horizon Wilshire 5000 Index is expected to generate 3.98 times more return on investment than Maryland Tax. However, Wilshire 5000 is 3.98 times more volatile than Maryland Tax Free Bond. It trades about 0.11 of its potential returns per unit of risk. Maryland Tax Free Bond is currently generating about 0.07 per unit of risk. If you would invest  3,325  in Wilshire 5000 Index on October 23, 2024 and sell it today you would earn a total of  57.00  from holding Wilshire 5000 Index or generate 1.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Wilshire 5000 Index  vs.  Maryland Tax Free Bond

Wilshire 5000 Index

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wilshire 5000 Index are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Wilshire 5000 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Maryland Tax Free

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Wilshire 5000 and Maryland Tax

The main advantage of trading using opposite Wilshire 5000 and Maryland Tax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wilshire 5000 position performs unexpectedly, Maryland Tax 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 Maryland Tax will offset losses from the drop in Maryland Tax's long position.

The idea behind Wilshire 5000 Index and Maryland Tax Free 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.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.