Correlation Between Balanced Strategy and Tax-exempt High

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Can any of the company-specific risk be diversified away by investing in both Balanced Strategy and Tax-exempt High 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 Balanced Strategy and Tax-exempt High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balanced Strategy Fund and Tax Exempt High Yield, you can compare the effects of market volatilities on Balanced Strategy and Tax-exempt High 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 Balanced Strategy with a short position of Tax-exempt High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Strategy and Tax-exempt High.

Diversification Opportunities for Balanced Strategy and Tax-exempt High

BalancedTax-exemptDiversified AwayBalancedTax-exemptDiversified Away100%
0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Balanced and Tax-exempt is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Strategy Fund and Tax Exempt High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt High and Balanced Strategy 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 Balanced Strategy Fund are associated (or correlated) with Tax-exempt High. 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 High has no effect on the direction of Balanced Strategy i.e., Balanced Strategy and Tax-exempt High go up and down completely randomly.

Pair Corralation between Balanced Strategy and Tax-exempt High

Assuming the 90 days horizon Balanced Strategy Fund is expected to under-perform the Tax-exempt High. In addition to that, Balanced Strategy is 1.8 times more volatile than Tax Exempt High Yield. It trades about -0.04 of its total potential returns per unit of risk. Tax Exempt High Yield is currently generating about 0.22 per unit of volatility. If you would invest  987.00  in Tax Exempt High Yield on November 30, 2024 and sell it today you would earn a total of  12.00  from holding Tax Exempt High Yield or generate 1.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

Balanced Strategy Fund  vs.  Tax Exempt High Yield

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -2-101
JavaScript chart by amCharts 3.21.15RBLAX RHYTX
       Timeline  
Balanced Strategy 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Balanced Strategy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Balanced Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb10.710.810.91111.1
Tax Exempt High 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Tax Exempt High Yield has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Tax-exempt High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb9.79.759.89.859.99.9510

Balanced Strategy and Tax-exempt High Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-0.83-0.58-0.33-0.0942-0.007250.06980.260.510.761.01 1234
JavaScript chart by amCharts 3.21.15RBLAX RHYTX
       Returns  

Pair Trading with Balanced Strategy and Tax-exempt High

The main advantage of trading using opposite Balanced Strategy and Tax-exempt High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Strategy position performs unexpectedly, Tax-exempt High 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 High will offset losses from the drop in Tax-exempt High's long position.
The idea behind Balanced Strategy Fund and Tax Exempt High Yield 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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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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