Can any of the company-specific risk be diversified away by investing in both Nuveen California and Eaton Vance 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 Nuveen California and Eaton Vance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nuveen California Select and Eaton Vance Tax, you can compare the effects of market volatilities on Nuveen California and Eaton Vance 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 Nuveen California with a short position of Eaton Vance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nuveen California and Eaton Vance.
Diversification Opportunities for Nuveen California and Eaton Vance
The 3 months correlation between Nuveen and Eaton is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen California Select and Eaton Vance Tax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton Vance Tax and Nuveen California 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 Nuveen California Select are associated (or correlated) with Eaton Vance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton Vance Tax has no effect on the direction of Nuveen California i.e., Nuveen California and Eaton Vance go up and down completely randomly.
Pair Corralation between Nuveen California and Eaton Vance
Considering the 90-day investment horizon Nuveen California Select is expected to under-perform the Eaton Vance. In addition to that, Nuveen California is 2.17 times more volatile than Eaton Vance Tax. It trades about -0.07 of its total potential returns per unit of risk. Eaton Vance Tax is currently generating about 0.2 per unit of volatility. If you would invest 1,341 in Eaton Vance Tax on March 6, 2024 and sell it today you would earn a total of 28.00 from holding Eaton Vance Tax or generate 2.09% return on investment over 90 days.
Over the last 90 days Nuveen California Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nuveen California is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Eaton Vance Tax are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Eaton Vance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.