Correlation Between Tax Exempt and American High-income
Can any of the company-specific risk be diversified away by investing in both Tax Exempt and American High-income 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 American High-income 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 American High Income Municipal, you can compare the effects of market volatilities on Tax Exempt and American High-income 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 American High-income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and American High-income.
Diversification Opportunities for Tax Exempt and American High-income
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Tax and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and American High Income Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American High Income 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 American High-income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American High Income has no effect on the direction of Tax Exempt i.e., Tax Exempt and American High-income go up and down completely randomly.
Pair Corralation between Tax Exempt and American High-income
Assuming the 90 days horizon Tax Exempt is expected to generate 1.53 times less return on investment than American High-income. But when comparing it to its historical volatility, Tax Exempt Bond is 1.19 times less risky than American High-income. It trades about 0.13 of its potential returns per unit of risk. American High Income Municipal is currently generating about 0.17 of returns per unit of risk over similar time horizon. 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 |
Tax Exempt Bond vs. American High Income Municipal
Performance |
| Timeline |
| Tax Exempt Bond |
| American High Income |
Tax Exempt and American High-income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Exempt and American High-income
The main advantage of trading using opposite Tax Exempt and American High-income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Exempt position performs unexpectedly, American High-income 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 American High-income will offset losses from the drop in American High-income's long position.| 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 |
| 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 |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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