Correlation Between Kentucky Tax-free and Hawaiian Tax

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

By analyzing existing cross correlation between Kentucky Tax Free Income and Hawaiian Tax Free Trust, you can compare the effects of market volatilities on Kentucky Tax-free and Hawaiian Tax 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 Kentucky Tax-free with a short position of Hawaiian Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kentucky Tax-free and Hawaiian Tax.

Diversification Opportunities for Kentucky Tax-free and Hawaiian Tax

0.71

Correlation Coefficient

Kentucky Tax-free  Hawaiian Tax

Poor diversification

The 3 months correlation between Kentucky and Hawaiian is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Kentucky Tax Free Income and Hawaiian Tax Free Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian Tax Free and Kentucky 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 Kentucky Tax Free Income are associated (or correlated) with Hawaiian Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaiian Tax Free has no effect on the direction of Kentucky Tax-free i.e., Kentucky Tax-free and Hawaiian Tax go up and down completely randomly.

Pair Corralation between Kentucky Tax-free and Hawaiian Tax

Assuming the 90 days horizon Kentucky Tax Free Income is expected to under-perform the Hawaiian Tax. But the mutual fund apears to be less risky and, when comparing its historical volatility, Kentucky Tax Free Income is 1.22 times less risky than Hawaiian Tax. The mutual fund trades about -0.28 of its potential returns per unit of risk. The Hawaiian Tax Free Trust is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,043  in Hawaiian Tax Free Trust on February 4, 2024 and sell it today you would earn a total of  1.00  from holding Hawaiian Tax Free Trust or generate 0.1% return on investment over 90 days.

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

Kentucky Tax Free Income  vs.  Hawaiian Tax Free Trust

Kentucky Tax Free

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kentucky Tax Free Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Kentucky Tax-free is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hawaiian Tax Free

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hawaiian Tax Free Trust has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Hawaiian Tax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kentucky Tax-free and Hawaiian Tax

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

The idea behind Kentucky Tax Free Income and Hawaiian Tax Free Trust 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..