Correlation Between Select Equity and Tax-exempt Bond
Can any of the company-specific risk be diversified away by investing in both Select Equity 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 Select Equity 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 Select Equity Fund and Tax Exempt Bond Fund, you can compare the effects of market volatilities on Select Equity 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 Select Equity with a short position of Tax-exempt Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Equity and Tax-exempt Bond.
Diversification Opportunities for Select Equity and Tax-exempt Bond
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Select and Tax-exempt is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Select Equity 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 Select Equity 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 Select Equity 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 Select Equity i.e., Select Equity and Tax-exempt Bond go up and down completely randomly.
Pair Corralation between Select Equity and Tax-exempt Bond
Assuming the 90 days horizon Select Equity Fund is expected to generate 4.13 times more return on investment than Tax-exempt Bond. However, Select Equity is 4.13 times more volatile than Tax Exempt Bond Fund. It trades about 0.24 of its potential returns per unit of risk. Tax Exempt Bond Fund is currently generating about 0.16 per unit of risk. If you would invest 1,976 in Select Equity Fund on August 29, 2024 and sell it today you would earn a total of 93.00 from holding Select Equity Fund or generate 4.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Select Equity Fund vs. Tax Exempt Bond Fund
Performance |
| Timeline |
| Select Equity |
| Tax Exempt Bond |
Select Equity and Tax-exempt Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Equity and Tax-exempt Bond
The main advantage of trading using opposite Select Equity and Tax-exempt Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Equity 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.| Select Equity vs. International Developed Markets | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate |
| Tax-exempt Bond vs. Qs Small Capitalization | Tax-exempt Bond vs. Ab Small Cap | Tax-exempt Bond vs. Fisher Small Cap | Tax-exempt Bond vs. Vanguard Small Cap Index |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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