Correlation Between Tax Exempt and Tax-exempt Bond
Can any of the company-specific risk be diversified away by investing in both Tax Exempt and Tax-exempt Bond 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 Tax-exempt Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Exempt Bond and Tax Exempt Bond Fund, you can compare the effects of market volatilities on Tax Exempt and Tax-exempt Bond 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 Tax-exempt Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Tax-exempt Bond.
Diversification Opportunities for Tax Exempt and Tax-exempt Bond
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Tax and Tax-exempt is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and Tax Exempt Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond 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 Bond are associated (or correlated) with Tax-exempt Bond. 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 Tax Exempt i.e., Tax Exempt and Tax-exempt Bond go up and down completely randomly.
Pair Corralation between Tax Exempt and Tax-exempt Bond
Assuming the 90 days horizon Tax Exempt Bond is expected to generate 1.34 times more return on investment than Tax-exempt Bond. However, Tax Exempt is 1.34 times more volatile than Tax Exempt Bond Fund. It trades about 0.15 of its potential returns per unit of risk. Tax Exempt Bond Fund is currently generating about 0.16 per unit of risk. If you would invest 1,241 in Tax Exempt Bond on August 29, 2024 and sell it today you would earn a total of 12.00 from holding Tax Exempt Bond or generate 0.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Exempt Bond vs. Tax Exempt Bond Fund
Performance |
| Timeline |
| Tax Exempt Bond |
| Tax Exempt Bond |
Tax Exempt and Tax-exempt Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Exempt and Tax-exempt Bond
The main advantage of trading using opposite Tax Exempt and Tax-exempt Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Exempt position performs unexpectedly, Tax-exempt Bond 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 Bond will offset losses from the drop in Tax-exempt Bond's long position.| Tax Exempt vs. Siit Emerging Markets | Tax Exempt vs. Aqr Long Short Equity | Tax Exempt vs. Legg Mason Partners | Tax Exempt vs. Origin Emerging Markets |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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