Correlation Between Tax Exempt and New World

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

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

Diversification Opportunities for Tax Exempt and New World

0.47

Correlation Coefficient

Tax Exempt  New World

Very weak diversification

The 3 months correlation between Tax and New is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Fund Of and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund 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 Fund Of are associated (or correlated) with New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of Tax Exempt i.e., Tax Exempt and New World go up and down completely randomly.

Pair Corralation between Tax Exempt and New World

Assuming the 90 days horizon Tax Exempt Fund Of is expected to generate 0.34 times more return on investment than New World. However, Tax Exempt Fund Of is 2.95 times less risky than New World. It trades about -0.12 of its potential returns per unit of risk. New World Fund is currently generating about -0.17 per unit of risk. If you would invest  1,699  in Tax Exempt Fund Of on September 28, 2024 and sell it today you would lose (33.00) from holding Tax Exempt Fund Of or give up 1.94% of portfolio value over 90 days.

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

Tax Exempt Fund Of  vs.  New World Fund

Tax Exempt Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tax Exempt Fund Of has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and 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.

New World Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New World Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Tax Exempt and New World

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

The idea behind Tax Exempt Fund Of and New World Fund 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.