Correlation Between National Tax and Tax Exempt
Can any of the company-specific risk be diversified away by investing in both National Tax 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 National Tax and Tax Exempt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The National Tax Free and Tax Exempt Bond, you can compare the effects of market volatilities on National Tax 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 National Tax with a short position of Tax Exempt. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Tax and Tax Exempt.
Diversification Opportunities for National Tax and Tax Exempt
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between National and Tax is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free 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 National Tax 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 The National Tax Free 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 National Tax i.e., National Tax and Tax Exempt go up and down completely randomly.
Pair Corralation between National Tax and Tax Exempt
Assuming the 90 days horizon National Tax is expected to generate 1.05 times less return on investment than Tax Exempt. But when comparing it to its historical volatility, The National Tax Free is 1.09 times less risky than Tax Exempt. It trades about 0.55 of its potential returns per unit of risk. Tax Exempt Bond is currently generating about 0.52 of returns per unit of risk over similar time horizon. If you would invest 1,245 in Tax Exempt Bond on September 13, 2024 and sell it today you would earn a total of 14.00 from holding Tax Exempt Bond or generate 1.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The National Tax Free vs. Tax Exempt Bond
Performance |
| Timeline |
| National Tax |
| Tax Exempt Bond |
National Tax and Tax Exempt Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Tax and Tax Exempt
The main advantage of trading using opposite National Tax and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Tax 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.| National Tax vs. The Missouri Tax Free | National Tax vs. The Bond Fund | National Tax vs. High Yield Municipal Fund | National Tax vs. Fidelity Intermediate Municipal |
| Tax Exempt vs. Eagle Mlp Strategy | Tax Exempt vs. Pnc Emerging Markets | Tax Exempt vs. Nasdaq 100 2x Strategy | Tax Exempt vs. Pace International Emerging |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
Other Complementary Tools
| Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| Equity Analysis Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world |