Correlation Between Vanguard Intermediate and Overlay Shares
Can any of the company-specific risk be diversified away by investing in both Vanguard Intermediate and Overlay Shares 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 Vanguard Intermediate and Overlay Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Intermediate Term Bond and Overlay Shares Core, you can compare the effects of market volatilities on Vanguard Intermediate and Overlay Shares 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 Vanguard Intermediate with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Intermediate and Overlay Shares.
Diversification Opportunities for Vanguard Intermediate and Overlay Shares
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Overlay is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Intermediate Term Bon and Overlay Shares Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Core and Vanguard Intermediate 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 Vanguard Intermediate Term Bond are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Core has no effect on the direction of Vanguard Intermediate i.e., Vanguard Intermediate and Overlay Shares go up and down completely randomly.
Pair Corralation between Vanguard Intermediate and Overlay Shares
Considering the 90-day investment horizon Vanguard Intermediate Term Bond is expected to under-perform the Overlay Shares. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Intermediate Term Bond is 1.04 times less risky than Overlay Shares. The etf trades about -0.23 of its potential returns per unit of risk. The Overlay Shares Core is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest 2,124 in Overlay Shares Core on August 26, 2024 and sell it today you would lose (52.00) from holding Overlay Shares Core or give up 2.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Intermediate Term Bon vs. Overlay Shares Core
Performance |
| Timeline |
| Vanguard Intermediate |
| Overlay Shares Core |
Vanguard Intermediate and Overlay Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Intermediate and Overlay Shares
The main advantage of trading using opposite Vanguard Intermediate and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Intermediate position performs unexpectedly, Overlay Shares 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 Overlay Shares will offset losses from the drop in Overlay Shares' long position.The idea behind Vanguard Intermediate Term Bond and Overlay Shares Core 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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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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