Correlation Between California Tax-free and Us Government
Can any of the company-specific risk be diversified away by investing in both California Tax-free and Us Government 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 Us Government 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 Us Government Securities, you can compare the effects of market volatilities on California Tax-free and Us Government 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 Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Tax-free and Us Government.
Diversification Opportunities for California Tax-free and Us Government
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between California and CAUSX is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding California Tax Free Income and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities 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 Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of California Tax-free i.e., California Tax-free and Us Government go up and down completely randomly.
Pair Corralation between California Tax-free and Us Government
Assuming the 90 days horizon California Tax Free Income is expected to generate 0.47 times more return on investment than Us Government. However, California Tax Free Income is 2.13 times less risky than Us Government. It trades about 0.06 of its potential returns per unit of risk. Us Government Securities is currently generating about 0.03 per unit of risk. If you would invest 1,022 in California Tax Free Income on August 29, 2024 and sell it today you would earn a total of 51.00 from holding California Tax Free Income or generate 4.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Tax Free Income vs. Us Government Securities
Performance |
| Timeline |
| California Tax Free |
| Us Government Securities |
California Tax-free and Us Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Tax-free and Us Government
The main advantage of trading using opposite California Tax-free and Us Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Tax-free position performs unexpectedly, Us Government 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 Us Government will offset losses from the drop in Us Government's long position.| California Tax-free vs. Tiaa Cref Small Cap Blend | California Tax-free vs. T Rowe Price | California Tax-free vs. Jhancock Diversified Macro | California Tax-free vs. Davenport Small Cap |
| Us Government vs. Us Government Securities | Us Government vs. American Funds Government | Us Government vs. Vanguard Mortgage Backed Securities | Us Government vs. Vanguard Gnma Fund |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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