Correlation Between Tax-exempt Bond and Strategic Bond
Can any of the company-specific risk be diversified away by investing in both Tax-exempt Bond and Strategic 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 Tax-exempt Bond and Strategic Bond 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 Strategic Bond Fund, you can compare the effects of market volatilities on Tax-exempt Bond and Strategic 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 Tax-exempt Bond with a short position of Strategic Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-exempt Bond and Strategic Bond.
Diversification Opportunities for Tax-exempt Bond and Strategic Bond
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tax-exempt and Strategic is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond Fund and Strategic Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Bond 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 Strategic Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Bond has no effect on the direction of Tax-exempt Bond i.e., Tax-exempt Bond and Strategic Bond go up and down completely randomly.
Pair Corralation between Tax-exempt Bond and Strategic Bond
Assuming the 90 days horizon Tax-exempt Bond is expected to generate 1.53 times less return on investment than Strategic Bond. But when comparing it to its historical volatility, Tax Exempt Bond Fund is 2.4 times less risky than Strategic Bond. It trades about 0.1 of its potential returns per unit of risk. Strategic Bond Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 870.00 in Strategic Bond Fund on September 3, 2024 and sell it today you would earn a total of 35.00 from holding Strategic Bond Fund or generate 4.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Exempt Bond Fund vs. Strategic Bond Fund
Performance |
| Timeline |
| Tax Exempt Bond |
| Strategic Bond |
Tax-exempt Bond and Strategic Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax-exempt Bond and Strategic Bond
The main advantage of trading using opposite Tax-exempt Bond and Strategic Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-exempt Bond position performs unexpectedly, Strategic 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 Strategic Bond will offset losses from the drop in Strategic Bond's long position.| Tax-exempt Bond vs. Blackrock High Yield | Tax-exempt Bond vs. Lord Abbett High | Tax-exempt Bond vs. Siit High Yield | Tax-exempt Bond vs. Gmo High Yield |
| Strategic Bond vs. Sentinel Small Pany | Strategic Bond vs. Legg Mason Bw | Strategic Bond vs. Blackrock Sm Cap | Strategic Bond vs. T Rowe Price |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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