Correlation Between Intermediate Term and Select Fund

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

By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Select Fund R6, you can compare the effects of market volatilities on Intermediate Term and Select Fund 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 Select Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Term and Select Fund.

Diversification Opportunities for Intermediate Term and Select Fund

0.57

Correlation Coefficient

Intermediate Term  Select Fund

Very weak diversification

The 3 months correlation between Intermediate and Select is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Select Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Fund R6 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 Tax Free Bond are associated (or correlated) with Select Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Fund R6 has no effect on the direction of Intermediate Term i.e., Intermediate Term and Select Fund go up and down completely randomly.

Pair Corralation between Intermediate Term and Select Fund

Assuming the 90 days horizon Intermediate Term is expected to generate 2570.0 times less return on investment than Select Fund. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 8.41 times less risky than Select Fund. It trades about 0.0 of its potential returns per unit of risk. Select Fund R6 is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  11,657  in Select Fund R6 on May 1, 2025 and sell it today you would earn a total of  1,974  from holding Select Fund R6 or generate 16.93% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  Select Fund R6

Intermediate Term Tax

Risk-Adjusted Performance

Very Weak

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

Select Fund R6

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund R6 are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Select Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Intermediate Term and Select Fund

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

The idea behind Intermediate Term Tax Free Bond and Select Fund R6 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.