Correlation Between Absolute Capital and Tax Managed

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

By analyzing existing cross correlation between Absolute Capital Defender and Tax Managed Mid Small, you can compare the effects of market volatilities on Absolute Capital and Tax Managed 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 Absolute Capital with a short position of Tax Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Capital and Tax Managed.

Diversification Opportunities for Absolute Capital and Tax Managed

0.99

Correlation Coefficient

Absolute Capital  Tax Managed

No risk reduction

The 3 months correlation between Absolute and Tax is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Capital Defender and Tax Managed Mid Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Managed Mid and Absolute Capital 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 Absolute Capital Defender are associated (or correlated) with Tax Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Managed Mid has no effect on the direction of Absolute Capital i.e., Absolute Capital and Tax Managed go up and down completely randomly.

Pair Corralation between Absolute Capital and Tax Managed

Assuming the 90 days horizon Absolute Capital is expected to generate 1.57 times less return on investment than Tax Managed. But when comparing it to its historical volatility, Absolute Capital Defender is 2.18 times less risky than Tax Managed. It trades about 0.21 of its potential returns per unit of risk. Tax Managed Mid Small is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,753  in Tax Managed Mid Small on May 3, 2025 and sell it today you would earn a total of  369.00  from holding Tax Managed Mid Small or generate 9.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Absolute Capital Defender  vs.  Tax Managed Mid Small

Absolute Capital Defender

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Capital Defender are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Absolute Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tax Managed Mid

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed Mid Small are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Tax Managed may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Absolute Capital and Tax Managed

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

The idea behind Absolute Capital Defender and Tax Managed Mid Small 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.