Correlation Between Smallcap Growth and Tax-exempt Bond
Can any of the company-specific risk be diversified away by investing in both Smallcap Growth and Tax-exempt Bond 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 Smallcap Growth and Tax-exempt Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap Growth Fund and Tax Exempt Bond Fund, you can compare the effects of market volatilities on Smallcap Growth and Tax-exempt Bond 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 Smallcap Growth with a short position of Tax-exempt Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Tax-exempt Bond.
Diversification Opportunities for Smallcap Growth and Tax-exempt Bond
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Smallcap and Tax-exempt is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Tax Exempt Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond and Smallcap Growth 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 Smallcap Growth Fund are associated (or correlated) with Tax-exempt Bond. 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 Smallcap Growth i.e., Smallcap Growth and Tax-exempt Bond go up and down completely randomly.
Pair Corralation between Smallcap Growth and Tax-exempt Bond
Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 5.23 times more return on investment than Tax-exempt Bond. However, Smallcap Growth is 5.23 times more volatile than Tax Exempt Bond Fund. It trades about 0.07 of its potential returns per unit of risk. Tax Exempt Bond Fund is currently generating about 0.07 per unit of risk. If you would invest 1,284 in Smallcap Growth Fund on August 29, 2024 and sell it today you would earn a total of 443.00 from holding Smallcap Growth Fund or generate 34.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap Growth Fund vs. Tax Exempt Bond Fund
Performance |
| Timeline |
| Smallcap Growth |
| Tax Exempt Bond |
Smallcap Growth and Tax-exempt Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap Growth and Tax-exempt Bond
The main advantage of trading using opposite Smallcap Growth and Tax-exempt Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Growth position performs unexpectedly, Tax-exempt Bond 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 Bond will offset losses from the drop in Tax-exempt Bond's long position.| Smallcap Growth vs. Ultra Short Term Fixed | Smallcap Growth vs. Nuveen Short Term | Smallcap Growth vs. Quantitative Longshort Equity | Smallcap Growth vs. Siit Ultra Short |
| Tax-exempt Bond vs. Strategic Asset Management | Tax-exempt Bond vs. Strategic Asset Management | Tax-exempt Bond vs. Strategic Asset Management | Tax-exempt Bond vs. Strategic Asset Management |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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