Correlation Between The National and Small Company

Can any of the company-specific risk be diversified away by investing in both The National and Small Company 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 The National and Small Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The National Tax Free and Small Pany Value, you can compare the effects of market volatilities on The National and Small Company 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 The National with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of The National and Small Company.

Diversification Opportunities for The National and Small Company

0.66

Correlation Coefficient

The National  Small Company

Poor diversification

The 3 months correlation between The and Small is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Small Pany Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Value and The National 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 The National Tax Free are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Value has no effect on the direction of The National i.e., The National and Small Company go up and down completely randomly.

Pair Corralation between The National and Small Company

Assuming the 90 days horizon The National Tax Free is expected to generate 0.14 times more return on investment than Small Company. However, The National Tax Free is 7.25 times less risky than Small Company. It trades about 0.45 of its potential returns per unit of risk. Small Pany Value is currently generating about 0.06 per unit of risk. If you would invest  1,821  in The National Tax Free on July 18, 2025 and sell it today you would earn a total of  68.00  from holding The National Tax Free or generate 3.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

The National Tax Free  vs.  Small Pany Value

National Tax

Risk-Adjusted Performance

High

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

Small Pany Value

Risk-Adjusted Performance

Soft

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

Pair Trading with The National and Small Company

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

The idea behind The National Tax Free and Small Pany Value 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.