Correlation Between Intermediate-term and Value Fund

Can any of the company-specific risk be diversified away by investing in both Intermediate-term and Value 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 Value 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 Value Fund I, you can compare the effects of market volatilities on Intermediate-term and Value 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 Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Value Fund.

Diversification Opportunities for Intermediate-term and Value Fund

0.85

Correlation Coefficient

Intermediate-term  Value Fund

Very poor diversification

The 3 months correlation between Intermediate-term and Value is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Value Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund I 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 Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund I has no effect on the direction of Intermediate-term i.e., Intermediate-term and Value Fund go up and down completely randomly.

Pair Corralation between Intermediate-term and Value Fund

Assuming the 90 days horizon Intermediate-term is expected to generate 7.34 times less return on investment than Value Fund. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 5.12 times less risky than Value Fund. It trades about 0.13 of its potential returns per unit of risk. Value Fund I is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  760.00  in Value Fund I on April 24, 2025 and sell it today you would earn a total of  66.00  from holding Value Fund I or generate 8.68% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  Value Fund I

Intermediate Term Tax

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Tax Free Bond are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Intermediate-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Fund I

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund I are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Value Fund may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Intermediate-term and Value Fund

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

The idea behind Intermediate Term Tax Free Bond and Value Fund I 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.