Correlation Between Tax-managed International and Tax-exempt High

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

By analyzing existing cross correlation between Tax Managed International Equity and Tax Exempt High Yield, you can compare the effects of market volatilities on Tax-managed International and Tax-exempt High 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-managed International with a short position of Tax-exempt High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed International and Tax-exempt High.

Diversification Opportunities for Tax-managed International and Tax-exempt High

0.6

Correlation Coefficient

Tax-managed International  Tax-exempt High

Poor diversification

The 3 months correlation between Tax-managed and Tax-exempt is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed International Equi and Tax Exempt High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt High and Tax-managed International 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 Managed International Equity are associated (or correlated) with Tax-exempt High. 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 High has no effect on the direction of Tax-managed International i.e., Tax-managed International and Tax-exempt High go up and down completely randomly.

Pair Corralation between Tax-managed International and Tax-exempt High

Assuming the 90 days horizon Tax Managed International Equity is expected to generate 3.94 times more return on investment than Tax-exempt High. However, Tax-managed International is 3.94 times more volatile than Tax Exempt High Yield. It trades about 0.12 of its potential returns per unit of risk. Tax Exempt High Yield is currently generating about 0.25 per unit of risk. If you would invest  1,153  in Tax Managed International Equity on February 11, 2024 and sell it today you would earn a total of  23.00  from holding Tax Managed International Equity or generate 1.99% return on investment over 90 days.

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

Tax Managed International Equi  vs.  Tax Exempt High Yield

Tax-managed International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed International Equity are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Tax-managed International may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Tax Exempt High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt High Yield are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-exempt High 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-managed International and Tax-exempt High

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

The idea behind Tax Managed International Equity and Tax Exempt High Yield 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.