Correlation Between Tax Free and Sit Emerging

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

By analyzing existing cross correlation between Tax Free Conservative and Sit Emerging Markets, you can compare the effects of market volatilities on Tax Free and Sit Emerging 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 Free with a short position of Sit Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Free and Sit Emerging.

Diversification Opportunities for Tax Free and Sit Emerging

-0.31

Correlation Coefficient

Tax Free  Sit Emerging

Very good diversification

The 3 months correlation between Tax and Sit is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Tax Free Conservative and Sit Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sit Emerging Markets and Tax Free 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 Free Conservative are associated (or correlated) with Sit Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sit Emerging Markets has no effect on the direction of Tax Free i.e., Tax Free and Sit Emerging go up and down completely randomly.

Pair Corralation between Tax Free and Sit Emerging

Assuming the 90 days horizon Tax Free is expected to generate 3.6 times less return on investment than Sit Emerging. But when comparing it to its historical volatility, Tax Free Conservative is 15.21 times less risky than Sit Emerging. It trades about 0.17 of its potential returns per unit of risk. Sit Emerging Markets is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,132  in Sit Emerging Markets on September 16, 2024 and sell it today you would earn a total of  22.00  from holding Sit Emerging Markets or generate 1.94% return on investment over 90 days.

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

Tax Free Conservative  vs.  Sit Emerging Markets

Tax Free Conservative

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Free Conservative are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax Free is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sit Emerging Markets

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sit Emerging Markets are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Sit Emerging 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 Free and Sit Emerging

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

The idea behind Tax Free Conservative and Sit Emerging 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.