Correlation Between American Funds and Tax Exempt
Can any of the company-specific risk be diversified away by investing in both American Funds and Tax Exempt 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 American Funds and Tax Exempt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Tax Exempt and Tax Exempt Fund Of, you can compare the effects of market volatilities on American Funds and Tax Exempt 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 American Funds with a short position of Tax Exempt. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Tax Exempt.
Diversification Opportunities for American Funds and Tax Exempt
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Tax is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Tax Exempt and Tax Exempt Fund Of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Fund and American Funds 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 American Funds Tax Exempt are associated (or correlated) with Tax Exempt. 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 Fund has no effect on the direction of American Funds i.e., American Funds and Tax Exempt go up and down completely randomly.
Pair Corralation between American Funds and Tax Exempt
Assuming the 90 days horizon American Funds is expected to generate 1.39 times less return on investment than Tax Exempt. But when comparing it to its historical volatility, American Funds Tax Exempt is 1.84 times less risky than Tax Exempt. It trades about 0.1 of its potential returns per unit of risk. Tax Exempt Fund Of is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,552 in Tax Exempt Fund Of on August 27, 2024 and sell it today you would earn a total of 130.00 from holding Tax Exempt Fund Of or generate 8.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Tax Exempt vs. Tax Exempt Fund Of
Performance |
| Timeline |
| American Funds Tax |
| Tax Exempt Fund |
American Funds and Tax Exempt Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Tax Exempt
The main advantage of trading using opposite American Funds and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Tax Exempt 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 will offset losses from the drop in Tax Exempt's long position.| American Funds vs. The National Tax Free | American Funds vs. Bbh Intermediate Municipal | American Funds vs. Oklahoma Municipal Fund | American Funds vs. Nuveen Minnesota Municipal |
| Tax Exempt vs. Tax Exempt Fund Of | Tax Exempt vs. American High Income Municipal | Tax Exempt vs. California Intermediate Term Tax Free | Tax Exempt vs. Capital World Bond |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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