Correlation Between California Municipal and Kentucky Tax

Can any of the company-specific risk be diversified away by investing in both California Municipal and Kentucky 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 Municipal and Kentucky Tax into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between California Municipal Portfolio and Kentucky Tax Free Short To Medium, you can compare the effects of market volatilities on California Municipal and Kentucky 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 Municipal with a short position of Kentucky Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Municipal and Kentucky Tax.

Diversification Opportunities for California Municipal and Kentucky Tax

0.86

Correlation Coefficient

California Municipal  Kentucky Tax

Very poor diversification

The 3 months correlation between California and Kentucky is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding California Municipal Portfolio and Kentucky Tax Free Short To Med in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kentucky Tax Free and California Municipal 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 Municipal Portfolio are associated (or correlated) with Kentucky Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kentucky Tax Free has no effect on the direction of California Municipal i.e., California Municipal and Kentucky Tax go up and down completely randomly.

Pair Corralation between California Municipal and Kentucky Tax

Assuming the 90 days horizon California Municipal Portfolio is expected to generate 1.39 times more return on investment than Kentucky Tax. However, California Municipal is 1.39 times more volatile than Kentucky Tax Free Short To Medium. It trades about 0.05 of its potential returns per unit of risk. Kentucky Tax Free Short To Medium is currently generating about 0.03 per unit of risk. If you would invest  1,391  in California Municipal Portfolio on September 1, 2024 and sell it today you would earn a total of  7.00  from holding California Municipal Portfolio or generate 0.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

California Municipal Portfolio  vs.  Kentucky Tax Free Short To Med

California Municipal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in California Municipal Portfolio are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, California Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kentucky Tax Free

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kentucky Tax Free Short To Medium are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Kentucky Tax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with California Municipal and Kentucky Tax

The main advantage of trading using opposite California Municipal and Kentucky Tax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Municipal position performs unexpectedly, Kentucky 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 Kentucky Tax will offset losses from the drop in Kentucky Tax's long position.

The idea behind California Municipal Portfolio and Kentucky Tax Free Short To Medium 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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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.