Correlation Between Maryland Tax-free and American Funds
Can any of the company-specific risk be diversified away by investing in both Maryland Tax-free and American Funds 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 Maryland Tax-free and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Maryland Tax Free Bond and American Funds 2060, you can compare the effects of market volatilities on Maryland Tax-free and American Funds 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 Maryland Tax-free with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maryland Tax-free and American Funds.
Diversification Opportunities for Maryland Tax-free and American Funds
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Maryland and American is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Maryland Tax Free Bond and American Funds 2060 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2060 and Maryland Tax-free 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 Maryland Tax Free Bond are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2060 has no effect on the direction of Maryland Tax-free i.e., Maryland Tax-free and American Funds go up and down completely randomly.
Pair Corralation between Maryland Tax-free and American Funds
Assuming the 90 days horizon Maryland Tax-free is expected to generate 2.61 times less return on investment than American Funds. But when comparing it to its historical volatility, Maryland Tax Free Bond is 1.82 times less risky than American Funds. It trades about 0.18 of its potential returns per unit of risk. American Funds 2060 is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 1,771 in American Funds 2060 on September 4, 2024 and sell it today you would earn a total of 58.00 from holding American Funds 2060 or generate 3.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Maryland Tax Free Bond vs. American Funds 2060
Performance |
| Timeline |
| Maryland Tax Free |
| American Funds 2060 |
Maryland Tax-free and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Maryland Tax-free and American Funds
The main advantage of trading using opposite Maryland Tax-free and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maryland Tax-free position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Maryland Tax-free vs. T Rowe Price | Maryland Tax-free vs. T Rowe Price | Maryland Tax-free vs. T Rowe Price | Maryland Tax-free vs. T Rowe Price |
| American Funds vs. Massmutual Select Diversified | American Funds vs. Fidelity Advisor Diversified | American Funds vs. Massmutual Premier Diversified | American Funds vs. Jhancock Diversified Macro |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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