Correlation Between National Tax and Russell 2000

Can any of the company-specific risk be diversified away by investing in both National Tax and Russell 2000 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 National Tax and Russell 2000 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The National Tax Free and Russell 2000 15x, you can compare the effects of market volatilities on National Tax and Russell 2000 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 National Tax with a short position of Russell 2000. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Tax and Russell 2000.

Diversification Opportunities for National Tax and Russell 2000

-0.03

Correlation Coefficient

National Tax  Russell 2000

Good diversification

The 3 months correlation between National and Russell is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Russell 2000 15x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 15x and National Tax 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 The National Tax Free are associated (or correlated) with Russell 2000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell 2000 15x has no effect on the direction of National Tax i.e., National Tax and Russell 2000 go up and down completely randomly.

Pair Corralation between National Tax and Russell 2000

Assuming the 90 days horizon The National Tax Free is expected to under-perform the Russell 2000. But the mutual fund apears to be less risky and, when comparing its historical volatility, The National Tax Free is 9.02 times less risky than Russell 2000. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Russell 2000 15x is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,639  in Russell 2000 15x on September 15, 2024 and sell it today you would earn a total of  489.00  from holding Russell 2000 15x or generate 8.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

The National Tax Free  vs.  Russell 2000 15x

National Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The National Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, National Tax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Russell 2000 15x

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Russell 2000 15x are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Russell 2000 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Tax and Russell 2000

The main advantage of trading using opposite National Tax and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Tax position performs unexpectedly, Russell 2000 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 Russell 2000 will offset losses from the drop in Russell 2000's long position.

The idea behind The National Tax Free and Russell 2000 15x 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.