Correlation Between California Bond and Virginia Tax
Can any of the company-specific risk be diversified away by investing in both California Bond and Virginia Tax 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 California Bond and Virginia Tax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Bond Fund and Virginia Tax Free Bond, you can compare the effects of market volatilities on California Bond and Virginia Tax 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 California Bond with a short position of Virginia Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Bond and Virginia Tax.
Diversification Opportunities for California Bond and Virginia Tax
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between California and Virginia is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Virginia Tax Free Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virginia Tax Free and California Bond 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 California Bond Fund are associated (or correlated) with Virginia Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virginia Tax Free has no effect on the direction of California Bond i.e., California Bond and Virginia Tax go up and down completely randomly.
Pair Corralation between California Bond and Virginia Tax
Assuming the 90 days horizon California Bond Fund is expected to generate 0.96 times more return on investment than Virginia Tax. However, California Bond Fund is 1.04 times less risky than Virginia Tax. It trades about 0.26 of its potential returns per unit of risk. Virginia Tax Free Bond is currently generating about 0.17 per unit of risk. If you would invest 1,031 in California Bond Fund on August 31, 2024 and sell it today you would earn a total of 20.00 from holding California Bond Fund or generate 1.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Bond Fund vs. Virginia Tax Free Bond
Performance |
| Timeline |
| California Bond |
| Virginia Tax Free |
California Bond and Virginia Tax Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Bond and Virginia Tax
The main advantage of trading using opposite California Bond and Virginia Tax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Bond position performs unexpectedly, Virginia Tax 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 Virginia Tax will offset losses from the drop in Virginia Tax's long position.| California Bond vs. Aqr Risk Balanced Modities | California Bond vs. California High Yield Municipal | California Bond vs. Ab High Income | California Bond vs. Pace High Yield |
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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