Correlation Between Short Duration and Tax-exempt High
Can any of the company-specific risk be diversified away by investing in both Short Duration 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 Short Duration 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 Short Duration Bond and Tax Exempt High Yield, you can compare the effects of market volatilities on Short Duration 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 Short Duration with a short position of Tax-exempt High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and Tax-exempt High.
Diversification Opportunities for Short Duration and Tax-exempt High
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short and Tax-exempt is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Bond 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 Short Duration 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 Short Duration Bond 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 Short Duration i.e., Short Duration and Tax-exempt High go up and down completely randomly.
Pair Corralation between Short Duration and Tax-exempt High
Assuming the 90 days horizon Short Duration is expected to generate 1.84 times less return on investment than Tax-exempt High. But when comparing it to its historical volatility, Short Duration Bond is 2.04 times less risky than Tax-exempt High. It trades about 0.19 of its potential returns per unit of risk. Tax Exempt High Yield is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 874.00 in Tax Exempt High Yield on August 25, 2024 and sell it today you would earn a total of 127.00 from holding Tax Exempt High Yield or generate 14.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Duration Bond vs. Tax Exempt High Yield
Performance |
| Timeline |
| Short Duration Bond |
| Tax Exempt High |
Short Duration and Tax-exempt High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and Tax-exempt High
The main advantage of trading using opposite Short Duration and Tax-exempt High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration 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.| Short Duration vs. T Rowe Price | Short Duration vs. Pace Municipal Fixed | Short Duration vs. Maryland Tax Free Bond | Short Duration vs. Transamerica Intermediate Muni |
| Tax-exempt High vs. Tax Exempt Fund Of | Tax-exempt High vs. Tax Exempt Fund Of | Tax-exempt High vs. Tax Exempt Bond Fund | Tax-exempt High vs. Tax Exempt Fund Of |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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