Correlation Between Tax Exempt and Intermediate-term
Can any of the company-specific risk be diversified away by investing in both Tax Exempt and Intermediate-term 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 Intermediate-term 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 Intermediate Term Tax Free Bond, you can compare the effects of market volatilities on Tax Exempt and Intermediate-term 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 Intermediate-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Intermediate-term.
Diversification Opportunities for Tax Exempt and Intermediate-term
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Tax and Intermediate-term is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and Intermediate Term Tax Free Bon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Tax 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 Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Tax has no effect on the direction of Tax Exempt i.e., Tax Exempt and Intermediate-term go up and down completely randomly.
Pair Corralation between Tax Exempt and Intermediate-term
Assuming the 90 days horizon Tax Exempt Bond is expected to generate 1.1 times more return on investment than Intermediate-term. However, Tax Exempt is 1.1 times more volatile than Intermediate Term Tax Free Bond. It trades about 0.18 of its potential returns per unit of risk. Intermediate Term Tax Free Bond is currently generating about 0.16 per unit of risk. If you would invest 1,245 in Tax Exempt Bond on September 3, 2024 and sell it today you would earn a total of 13.00 from holding Tax Exempt Bond or generate 1.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Exempt Bond vs. Intermediate Term Tax Free Bon
Performance |
| Timeline |
| Tax Exempt Bond |
| Intermediate Term Tax |
Tax Exempt and Intermediate-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Exempt and Intermediate-term
The main advantage of trading using opposite Tax Exempt and Intermediate-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Exempt position performs unexpectedly, Intermediate-term 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 Intermediate-term will offset losses from the drop in Intermediate-term's long position.| Tax Exempt vs. Sprott Gold Equity | Tax Exempt vs. Precious Metals And | Tax Exempt vs. Fidelity Advisor Gold | Tax Exempt vs. Europac Gold Fund |
| Intermediate-term vs. Vanguard Intermediate Term Tax Exempt | Intermediate-term vs. Vanguard Intermediate Term Tax Exempt | Intermediate-term vs. Tax Exempt Bond | Intermediate-term vs. Tax Exempt Bond |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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