Correlation Between American High-income and Tax Exempt
Can any of the company-specific risk be diversified away by investing in both American High-income 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 American High-income and Tax Exempt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American High Income Municipal and Tax Exempt Bond, you can compare the effects of market volatilities on American High-income 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 American High-income with a short position of Tax Exempt. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Tax Exempt.
Diversification Opportunities for American High-income and Tax Exempt
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Tax is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding American High Income Municipal and Tax Exempt Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond and American High-income 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 American High Income Municipal 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 Bond has no effect on the direction of American High-income i.e., American High-income and Tax Exempt go up and down completely randomly.
Pair Corralation between American High-income and Tax Exempt
Assuming the 90 days horizon American High Income Municipal is expected to generate 1.19 times more return on investment than Tax Exempt. However, American High-income is 1.19 times more volatile than Tax Exempt Bond. It trades about 0.17 of its potential returns per unit of risk. Tax Exempt Bond is currently generating about 0.13 per unit of risk. If you would invest 1,465 in American High Income Municipal on August 24, 2024 and sell it today you would earn a total of 79.00 from holding American High Income Municipal or generate 5.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American High Income Municipal vs. Tax Exempt Bond
Performance |
| Timeline |
| American High Income |
| Tax Exempt Bond |
American High-income and Tax Exempt Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American High-income and Tax Exempt
The main advantage of trading using opposite American High-income and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American High-income 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.| American High-income vs. Nuveen High Yield | American High-income vs. Nuveen High Yield | American High-income vs. Nuveen High Yield | American High-income vs. Nuveen High Yield |
| Tax Exempt vs. Franklin Federal Tax Free | Tax Exempt vs. Thornburg Limited Term | Tax Exempt vs. T Rowe Price | Tax Exempt vs. Invesco International Growth |
Check out your portfolio center.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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