Correlation Between Tax Exempt and Growth
Can any of the company-specific risk be diversified away by investing in both Tax Exempt and Growth 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 Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Exempt Intermediate Term and Growth And Tax, you can compare the effects of market volatilities on Tax Exempt and Growth 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 Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Growth.
Diversification Opportunities for Tax Exempt and Growth
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Tax and Growth is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Intermediate Term and Growth And Tax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth And Tax 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 Intermediate Term are associated (or correlated) with Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth And Tax has no effect on the direction of Tax Exempt i.e., Tax Exempt and Growth go up and down completely randomly.
Pair Corralation between Tax Exempt and Growth
Assuming the 90 days horizon Tax Exempt is expected to generate 3.37 times less return on investment than Growth. But when comparing it to its historical volatility, Tax Exempt Intermediate Term is 1.41 times less risky than Growth. It trades about 0.21 of its potential returns per unit of risk. Growth And Tax is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest 2,754 in Growth And Tax on September 1, 2024 and sell it today you would earn a total of 105.00 from holding Growth And Tax or generate 3.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Exempt Intermediate Term vs. Growth And Tax
Performance |
| Timeline |
| Tax Exempt Intermediate |
| Growth And Tax |
Tax Exempt and Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Exempt and Growth
The main advantage of trading using opposite Tax Exempt and Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Exempt position performs unexpectedly, Growth 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 Growth will offset losses from the drop in Growth's long position.| Tax Exempt vs. Touchstone Large Cap | Tax Exempt vs. Enhanced Large Pany | Tax Exempt vs. T Rowe Price | Tax Exempt vs. Tax Managed Large Cap |
| Growth vs. World Growth Fund | Growth vs. Income Stock Fund | Growth vs. Tax Exempt Long Term | Growth vs. Tax Exempt Intermediate Term |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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