Correlation Between Tax-managed and Lifex Inflation-protec
Can any of the company-specific risk be diversified away by investing in both Tax-managed and Lifex Inflation-protec 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-managed and Lifex Inflation-protec into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Managed Large Cap and Lifex Inflation Protected Income, you can compare the effects of market volatilities on Tax-managed and Lifex Inflation-protec 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-managed with a short position of Lifex Inflation-protec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Lifex Inflation-protec.
Diversification Opportunities for Tax-managed and Lifex Inflation-protec
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tax-managed and Lifex is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Lifex Inflation Protected Inco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifex Inflation-protec and Tax-managed 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 Managed Large Cap are associated (or correlated) with Lifex Inflation-protec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifex Inflation-protec has no effect on the direction of Tax-managed i.e., Tax-managed and Lifex Inflation-protec go up and down completely randomly.
Pair Corralation between Tax-managed and Lifex Inflation-protec
Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 1.84 times more return on investment than Lifex Inflation-protec. However, Tax-managed is 1.84 times more volatile than Lifex Inflation Protected Income. It trades about 0.1 of its potential returns per unit of risk. Lifex Inflation Protected Income is currently generating about 0.06 per unit of risk. If you would invest 5,435 in Tax Managed Large Cap on September 4, 2024 and sell it today you would earn a total of 2,554 from holding Tax Managed Large Cap or generate 46.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 44.33% |
| Values | Daily Returns |
Tax Managed Large Cap vs. Lifex Inflation Protected Inco
Performance |
| Timeline |
| Tax Managed Large |
| Lifex Inflation-protec |
Tax-managed and Lifex Inflation-protec Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax-managed and Lifex Inflation-protec
The main advantage of trading using opposite Tax-managed and Lifex Inflation-protec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-managed position performs unexpectedly, Lifex Inflation-protec 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 Lifex Inflation-protec will offset losses from the drop in Lifex Inflation-protec's long position.| Tax-managed vs. International Developed Markets | Tax-managed vs. Global Real Estate | Tax-managed vs. Global Real Estate | Tax-managed vs. Global Real Estate |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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