Correlation Between California Municipal and Tennessee Tax-free

Can any of the company-specific risk be diversified away by investing in both California Municipal and Tennessee Tax-free 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 Tennessee Tax-free 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 Tennessee Tax Free Short To Medium, you can compare the effects of market volatilities on California Municipal and Tennessee Tax-free 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 Tennessee Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Municipal and Tennessee Tax-free.

Diversification Opportunities for California Municipal and Tennessee Tax-free

0.77

Correlation Coefficient

California Municipal  Tennessee Tax-free

Poor diversification

The 3 months correlation between California and Tennessee is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding California Municipal Portfolio and Tennessee Tax Free Short To Me in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tennessee 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 Tennessee Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tennessee Tax Free has no effect on the direction of California Municipal i.e., California Municipal and Tennessee Tax-free go up and down completely randomly.

Pair Corralation between California Municipal and Tennessee Tax-free

Assuming the 90 days horizon California Municipal Portfolio is expected to generate 2.81 times more return on investment than Tennessee Tax-free. However, California Municipal is 2.81 times more volatile than Tennessee Tax Free Short To Medium. It trades about 0.05 of its potential returns per unit of risk. Tennessee 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 2, 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	Significant
Accuracy	100.0%
Values	Daily Returns

California Municipal Portfolio  vs.  Tennessee Tax Free Short To Me

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.

Tennessee Tax Free

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tennessee 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, Tennessee Tax-free 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 Tennessee Tax-free

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

The idea behind California Municipal Portfolio and Tennessee 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.