Correlation Between Tax Exempt and International Developed

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

By analyzing existing cross correlation between Tax Exempt High Yield and International Developed Markets, you can compare the effects of market volatilities on Tax Exempt and International Developed 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 International Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and International Developed.

Diversification Opportunities for Tax Exempt and International Developed

0.26

Correlation Coefficient

Tax Exempt  International Developed

Modest diversification

The 3 months correlation between Tax and International is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt High Yield and International Developed Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Developed 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 High Yield are associated (or correlated) with International Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Developed has no effect on the direction of Tax Exempt i.e., Tax Exempt and International Developed go up and down completely randomly.

Pair Corralation between Tax Exempt and International Developed

Assuming the 90 days horizon Tax Exempt High Yield is expected to generate 0.42 times more return on investment than International Developed. However, Tax Exempt High Yield is 2.36 times less risky than International Developed. It trades about 0.0 of its potential returns per unit of risk. International Developed Markets is currently generating about -0.06 per unit of risk. If you would invest  1,000.00  in Tax Exempt High Yield on September 16, 2024 and sell it today you would lose (1.00) from holding Tax Exempt High Yield or give up 0.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Tax Exempt High Yield  vs.  International Developed Market

Tax Exempt High

Risk-Adjusted Performance

0 of 100

Very Weak

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

International Developed

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tax Exempt and International Developed

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

The idea behind Tax Exempt High Yield and International Developed Markets 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.