Correlation Between Alternative Asset and Taxable Municipal
Can any of the company-specific risk be diversified away by investing in both Alternative Asset and Taxable Municipal 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 Alternative Asset and Taxable Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alternative Asset Allocation and Taxable Municipal Bond, you can compare the effects of market volatilities on Alternative Asset and Taxable Municipal 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 Alternative Asset with a short position of Taxable Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alternative Asset and Taxable Municipal.
Diversification Opportunities for Alternative Asset and Taxable Municipal
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Alternative and Taxable is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Alternative Asset Allocation and Taxable Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taxable Municipal Bond and Alternative Asset 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 Alternative Asset Allocation are associated (or correlated) with Taxable Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taxable Municipal Bond has no effect on the direction of Alternative Asset i.e., Alternative Asset and Taxable Municipal go up and down completely randomly.
Pair Corralation between Alternative Asset and Taxable Municipal
Assuming the 90 days horizon Alternative Asset Allocation is expected to generate 0.38 times more return on investment than Taxable Municipal. However, Alternative Asset Allocation is 2.62 times less risky than Taxable Municipal. It trades about 0.11 of its potential returns per unit of risk. Taxable Municipal Bond is currently generating about 0.03 per unit of risk. If you would invest 1,428 in Alternative Asset Allocation on September 3, 2024 and sell it today you would earn a total of 194.00 from holding Alternative Asset Allocation or generate 13.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alternative Asset Allocation vs. Taxable Municipal Bond
Performance |
| Timeline |
| Alternative Asset |
| Taxable Municipal Bond |
Alternative Asset and Taxable Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alternative Asset and Taxable Municipal
The main advantage of trading using opposite Alternative Asset and Taxable Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alternative Asset position performs unexpectedly, Taxable Municipal 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 Taxable Municipal will offset losses from the drop in Taxable Municipal's long position.The idea behind Alternative Asset Allocation and Taxable Municipal Bond 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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