Correlation Between Intermediate-term and Tax Exempt

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

By analyzing existing cross correlation between Intermediate Term Bond Fund and Tax Exempt Intermediate Term, you can compare the effects of market volatilities on Intermediate-term and Tax Exempt 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 Intermediate-term with a short position of Tax Exempt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Tax Exempt.

Diversification Opportunities for Intermediate-term and Tax Exempt

0.64

Correlation Coefficient

Intermediate-term  Tax Exempt

Poor diversification

The 3 months correlation between Intermediate-term and Tax is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Bond Fund and Tax Exempt Intermediate Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Intermediate and Intermediate-term 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 Intermediate Term Bond Fund are associated (or correlated) with Tax Exempt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Intermediate has no effect on the direction of Intermediate-term i.e., Intermediate-term and Tax Exempt go up and down completely randomly.

Pair Corralation between Intermediate-term and Tax Exempt

Assuming the 90 days horizon Intermediate Term Bond Fund is expected to under-perform the Tax Exempt. In addition to that, Intermediate-term is 1.41 times more volatile than Tax Exempt Intermediate Term. It trades about -0.03 of its total potential returns per unit of risk. Tax Exempt Intermediate Term is currently generating about 0.05 per unit of volatility. If you would invest  1,260  in Tax Exempt Intermediate Term on September 3, 2024 and sell it today you would earn a total of  9.00  from holding Tax Exempt Intermediate Term or generate 0.71% return on investment over 90 days.

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

Intermediate Term Bond Fund  vs.  Tax Exempt Intermediate Term

Intermediate Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Term Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Intermediate-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tax Exempt Intermediate

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Intermediate Term are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Tax Exempt is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Intermediate-term and Tax Exempt

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

The idea behind Intermediate Term Bond Fund and Tax Exempt Intermediate Term 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.