Correlation Between Tax-exempt Bond and Balanced Strategy
Can any of the company-specific risk be diversified away by investing in both Tax-exempt Bond and Balanced Strategy 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 Tax-exempt Bond and Balanced Strategy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Exempt Bond Fund and Balanced Strategy Fund, you can compare the effects of market volatilities on Tax-exempt Bond and Balanced Strategy 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 Tax-exempt Bond with a short position of Balanced Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-exempt Bond and Balanced Strategy.
Diversification Opportunities for Tax-exempt Bond and Balanced Strategy
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Tax-exempt and Balanced is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond Fund and Balanced Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Strategy and Tax-exempt Bond 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 Tax Exempt Bond Fund are associated (or correlated) with Balanced Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Strategy has no effect on the direction of Tax-exempt Bond i.e., Tax-exempt Bond and Balanced Strategy go up and down completely randomly.
Pair Corralation between Tax-exempt Bond and Balanced Strategy
Assuming the 90 days horizon Tax-exempt Bond is expected to generate 5.64 times less return on investment than Balanced Strategy. But when comparing it to its historical volatility, Tax Exempt Bond Fund is 3.35 times less risky than Balanced Strategy. It trades about 0.06 of its potential returns per unit of risk. Balanced Strategy Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 967.00 in Balanced Strategy Fund on November 9, 2024 and sell it today you would earn a total of 140.00 from holding Balanced Strategy Fund or generate 14.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Exempt Bond Fund vs. Balanced Strategy Fund
Performance |
| Timeline |
| Tax Exempt Bond |
| Balanced Strategy |
Tax-exempt Bond and Balanced Strategy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax-exempt Bond and Balanced Strategy
The main advantage of trading using opposite Tax-exempt Bond and Balanced Strategy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-exempt Bond position performs unexpectedly, Balanced Strategy 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 Balanced Strategy will offset losses from the drop in Balanced Strategy's long position.| Tax-exempt Bond vs. Short Term Government Fund | Tax-exempt Bond vs. Aig Government Money | Tax-exempt Bond vs. Payden Government Fund | Tax-exempt Bond vs. Blackrock Government Bond |
| Balanced Strategy vs. Simt High Yield | Balanced Strategy vs. Strategic Advisers Income | Balanced Strategy vs. Pace High Yield | Balanced Strategy vs. Tiaa Cref High Yield Fund |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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