Correlation Between Short-term Government and Hawaiian Tax-free
Can any of the company-specific risk be diversified away by investing in both Short-term Government and Hawaiian 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 Short-term Government and Hawaiian Tax-free into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Government Fund and Hawaiian Tax Free Trust, you can compare the effects of market volatilities on Short-term Government and Hawaiian 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 Short-term Government with a short position of Hawaiian Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Hawaiian Tax-free.
Diversification Opportunities for Short-term Government and Hawaiian Tax-free
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short-term and Hawaiian is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Hawaiian Tax Free Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian Tax Free and Short-term Government 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 Short Term Government Fund are associated (or correlated) with Hawaiian 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 Hawaiian Tax Free has no effect on the direction of Short-term Government i.e., Short-term Government and Hawaiian Tax-free go up and down completely randomly.
Pair Corralation between Short-term Government and Hawaiian Tax-free
Assuming the 90 days horizon Short-term Government is expected to generate 1.04 times less return on investment than Hawaiian Tax-free. But when comparing it to its historical volatility, Short Term Government Fund is 1.26 times less risky than Hawaiian Tax-free. It trades about 0.08 of its potential returns per unit of risk. Hawaiian Tax Free Trust is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,018 in Hawaiian Tax Free Trust on September 4, 2024 and sell it today you would earn a total of 46.00 from holding Hawaiian Tax Free Trust or generate 4.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Short Term Government Fund vs. Hawaiian Tax Free Trust
Performance |
| Timeline |
| Short Term Government |
| Hawaiian Tax Free |
Short-term Government and Hawaiian Tax-free Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and Hawaiian Tax-free
The main advantage of trading using opposite Short-term Government and Hawaiian Tax-free positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government position performs unexpectedly, Hawaiian 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 Hawaiian Tax-free will offset losses from the drop in Hawaiian Tax-free's long position.The idea behind Short Term Government Fund and Hawaiian Tax Free Trust pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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