Correlation Between Tax Exempt and Nasdaq-100 Index
Can any of the company-specific risk be diversified away by investing in both Tax Exempt and Nasdaq-100 Index 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 Nasdaq-100 Index 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 Nasdaq 100 Index Fund, you can compare the effects of market volatilities on Tax Exempt and Nasdaq-100 Index 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 Nasdaq-100 Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Nasdaq-100 Index.
Diversification Opportunities for Tax Exempt and Nasdaq-100 Index
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Tax and Nasdaq-100 is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and Nasdaq 100 Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Index 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 Nasdaq-100 Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Index has no effect on the direction of Tax Exempt i.e., Tax Exempt and Nasdaq-100 Index go up and down completely randomly.
Pair Corralation between Tax Exempt and Nasdaq-100 Index
Assuming the 90 days horizon Tax Exempt is expected to generate 6.05 times less return on investment than Nasdaq-100 Index. But when comparing it to its historical volatility, Tax Exempt Bond is 5.19 times less risky than Nasdaq-100 Index. It trades about 0.08 of its potential returns per unit of risk. Nasdaq 100 Index Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,111 in Nasdaq 100 Index Fund on September 3, 2024 and sell it today you would earn a total of 2,151 from holding Nasdaq 100 Index Fund or generate 69.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Exempt Bond vs. Nasdaq 100 Index Fund
Performance |
| Timeline |
| Tax Exempt Bond |
| Nasdaq 100 Index |
Tax Exempt and Nasdaq-100 Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Exempt and Nasdaq-100 Index
The main advantage of trading using opposite Tax Exempt and Nasdaq-100 Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Exempt position performs unexpectedly, Nasdaq-100 Index 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 Nasdaq-100 Index will offset losses from the drop in Nasdaq-100 Index's long position.| Tax Exempt vs. Vela Large Cap | Tax Exempt vs. Dana Large Cap | Tax Exempt vs. Qs Large Cap | Tax Exempt vs. Tax Managed Large Cap |
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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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