Correlation Between Small Cap and DTF Tax
Can any of the company-specific risk be diversified away by investing in both Small Cap and DTF Tax 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 Small Cap and DTF Tax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and DTF Tax Free, you can compare the effects of market volatilities on Small Cap and DTF Tax 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 Small Cap with a short position of DTF Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and DTF Tax.
Diversification Opportunities for Small Cap and DTF Tax
Very weak diversification
The 3 months correlation between Small and DTF is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and DTF Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTF Tax Free and Small Cap 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 Small Cap Core are associated (or correlated) with DTF Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DTF Tax Free has no effect on the direction of Small Cap i.e., Small Cap and DTF Tax go up and down completely randomly.
Pair Corralation between Small Cap and DTF Tax
Assuming the 90 days horizon Small Cap Core is expected to generate 4.18 times more return on investment than DTF Tax. However, Small Cap is 4.18 times more volatile than DTF Tax Free. It trades about 0.21 of its potential returns per unit of risk. DTF Tax Free is currently generating about 0.12 per unit of risk. If you would invest 1,387 in Small Cap Core on August 31, 2024 and sell it today you would earn a total of 111.00 from holding Small Cap Core or generate 8.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. DTF Tax Free
Performance |
| Timeline |
| Small Cap Core |
| DTF Tax Free |
Small Cap and DTF Tax Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and DTF Tax
The main advantage of trading using opposite Small Cap and DTF Tax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, DTF Tax 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 DTF Tax will offset losses from the drop in DTF Tax's long position.| Small Cap vs. Pimco Funds | Small Cap vs. T Rowe Price | Small Cap vs. Prudential Government Money | Small Cap vs. Transamerica Funds |
| DTF Tax vs. MFS Investment Grade | DTF Tax vs. Eaton Vance National | DTF Tax vs. Invesco High Income | DTF Tax vs. MFS High Yield |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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