Correlation Between California Tax-free and Balter Invenomic
Can any of the company-specific risk be diversified away by investing in both California Tax-free and Balter Invenomic 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 California Tax-free and Balter Invenomic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Tax Free Income and Balter Invenomic Fund, you can compare the effects of market volatilities on California Tax-free and Balter Invenomic 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 California Tax-free with a short position of Balter Invenomic. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Tax-free and Balter Invenomic.
Diversification Opportunities for California Tax-free and Balter Invenomic
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between California and Balter is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding California Tax Free Income and Balter Invenomic Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balter Invenomic and California Tax-free 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 California Tax Free Income are associated (or correlated) with Balter Invenomic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balter Invenomic has no effect on the direction of California Tax-free i.e., California Tax-free and Balter Invenomic go up and down completely randomly.
Pair Corralation between California Tax-free and Balter Invenomic
Assuming the 90 days horizon California Tax Free Income is expected to generate 0.18 times more return on investment than Balter Invenomic. However, California Tax Free Income is 5.68 times less risky than Balter Invenomic. It trades about 0.06 of its potential returns per unit of risk. Balter Invenomic Fund is currently generating about -0.03 per unit of risk. If you would invest 1,026 in California Tax Free Income on August 31, 2024 and sell it today you would earn a total of 49.00 from holding California Tax Free Income or generate 4.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Tax Free Income vs. Balter Invenomic Fund
Performance |
| Timeline |
| California Tax Free |
| Balter Invenomic |
California Tax-free and Balter Invenomic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Tax-free and Balter Invenomic
The main advantage of trading using opposite California Tax-free and Balter Invenomic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Tax-free position performs unexpectedly, Balter Invenomic 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 Balter Invenomic will offset losses from the drop in Balter Invenomic's long position.The idea behind California Tax Free Income and Balter Invenomic Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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