Correlation Between Tax Exempt and Sit Tax-free
Can any of the company-specific risk be diversified away by investing in both Tax Exempt and Sit Tax-free 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 and Sit Tax-free into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Exempt Bond and Sit Tax Free Income, you can compare the effects of market volatilities on Tax Exempt and Sit Tax-free 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 with a short position of Sit Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Sit Tax-free.
Diversification Opportunities for Tax Exempt and Sit Tax-free
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Tax and Sit is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and Sit Tax Free Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sit Tax Free and Tax Exempt 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 are associated (or correlated) with Sit Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sit Tax Free has no effect on the direction of Tax Exempt i.e., Tax Exempt and Sit Tax-free go up and down completely randomly.
Pair Corralation between Tax Exempt and Sit Tax-free
Assuming the 90 days horizon Tax Exempt is expected to generate 1.31 times less return on investment than Sit Tax-free. But when comparing it to its historical volatility, Tax Exempt Bond is 1.22 times less risky than Sit Tax-free. It trades about 0.16 of its potential returns per unit of risk. Sit Tax Free Income is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 840.00 in Sit Tax Free Income on September 1, 2024 and sell it today you would earn a total of 47.00 from holding Sit Tax Free Income or generate 5.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Tax Exempt Bond vs. Sit Tax Free Income
Performance |
| Timeline |
| Tax Exempt Bond |
| Sit Tax Free |
Tax Exempt and Sit Tax-free Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Exempt and Sit Tax-free
The main advantage of trading using opposite Tax Exempt and Sit Tax-free positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Exempt position performs unexpectedly, Sit Tax-free 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 Sit Tax-free will offset losses from the drop in Sit Tax-free's long position.| Tax Exempt vs. Income Fund Of | Tax Exempt vs. New World Fund | Tax Exempt vs. American Mutual Fund | Tax Exempt vs. American Mutual Fund |
| Sit Tax-free vs. Kinetics Small Cap | Sit Tax-free vs. Vanguard Growth And | Sit Tax-free vs. T Rowe Price | Sit Tax-free vs. Growth Opportunities Fund |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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