Correlation Between Tax Exempt and Enhanced Large

Can any of the company-specific risk be diversified away by investing in both Tax Exempt and Enhanced Large 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 Enhanced Large 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 Enhanced Large Pany, you can compare the effects of market volatilities on Tax Exempt and Enhanced Large 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 Enhanced Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Enhanced Large.

Diversification Opportunities for Tax Exempt and Enhanced Large

0.25

Correlation Coefficient

Tax Exempt  Enhanced Large

Modest diversification

The 3 months correlation between Tax and Enhanced is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt High Yield and Enhanced Large Pany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enhanced Large Pany 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 Enhanced Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enhanced Large Pany has no effect on the direction of Tax Exempt i.e., Tax Exempt and Enhanced Large go up and down completely randomly.

Pair Corralation between Tax Exempt and Enhanced Large

Assuming the 90 days horizon Tax Exempt is expected to generate 1.62 times less return on investment than Enhanced Large. But when comparing it to its historical volatility, Tax Exempt High Yield is 2.85 times less risky than Enhanced Large. It trades about 0.12 of its potential returns per unit of risk. Enhanced Large Pany is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,528  in Enhanced Large Pany on September 17, 2024 and sell it today you would earn a total of  12.00  from holding Enhanced Large Pany or generate 0.79% return on investment 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.  Enhanced Large Pany

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 basic indicators, Tax Exempt is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Enhanced Large Pany

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enhanced Large Pany are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Enhanced Large 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 Enhanced Large

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

The idea behind Tax Exempt High Yield and Enhanced Large Pany 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.