Correlation Between Tax Exempt and Alternative Asset

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

By analyzing existing cross correlation between Tax Exempt Bond and Alternative Asset Allocation, you can compare the effects of market volatilities on Tax Exempt and Alternative Asset 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 Alternative Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and Alternative Asset.

Diversification Opportunities for Tax Exempt and Alternative Asset

0.32

Correlation Coefficient

Tax Exempt  Alternative Asset

Weak diversification

The 3 months correlation between Tax and Alternative is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Bond and Alternative Asset Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alternative Asset 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 Bond are associated (or correlated) with Alternative Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alternative Asset has no effect on the direction of Tax Exempt i.e., Tax Exempt and Alternative Asset go up and down completely randomly.

Pair Corralation between Tax Exempt and Alternative Asset

Assuming the 90 days horizon Tax Exempt is expected to generate 2.18 times less return on investment than Alternative Asset. In addition to that, Tax Exempt is 1.22 times more volatile than Alternative Asset Allocation. It trades about 0.04 of its total potential returns per unit of risk. Alternative Asset Allocation is currently generating about 0.1 per unit of volatility. If you would invest  1,608  in Alternative Asset Allocation on September 13, 2024 and sell it today you would earn a total of  20.00  from holding Alternative Asset Allocation or generate 1.24% 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 Bond  vs.  Alternative Asset Allocation

Tax Exempt Bond

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Bond are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. 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.

Alternative Asset

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alternative Asset Allocation are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Alternative Asset 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 Alternative Asset

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

The idea behind Tax Exempt Bond and Alternative Asset Allocation 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.