Correlation Between Target Retirement and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both Target Retirement and Vanguard Total 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 Target Retirement and Vanguard Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target Retirement 2040 and Vanguard Total Stock, you can compare the effects of market volatilities on Target Retirement and Vanguard Total 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 Target Retirement with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Vanguard Total.
Diversification Opportunities for Target Retirement and Vanguard Total
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Target and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock and Target Retirement 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 Target Retirement 2040 are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of Target Retirement i.e., Target Retirement and Vanguard Total go up and down completely randomly.
Pair Corralation between Target Retirement and Vanguard Total
Assuming the 90 days horizon Target Retirement is expected to generate 1.62 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, Target Retirement 2040 is 1.33 times less risky than Vanguard Total. It trades about 0.15 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 9,866 in Vanguard Total Stock on August 25, 2024 and sell it today you would earn a total of 4,568 from holding Vanguard Total Stock or generate 46.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.63% |
| Values | Daily Returns |
Target Retirement 2040 vs. Vanguard Total Stock
Performance |
| Timeline |
| Target Retirement 2040 |
| Vanguard Total Stock |
Target Retirement and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Target Retirement and Vanguard Total
The main advantage of trading using opposite Target Retirement and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Retirement position performs unexpectedly, Vanguard Total 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 Vanguard Total will offset losses from the drop in Vanguard Total's long position.| Target Retirement vs. Income Fund Income | Target Retirement vs. Usaa Nasdaq 100 | Target Retirement vs. Victory Diversified Stock | Target Retirement vs. Intermediate Term Bond Fund |
| Vanguard Total vs. Lifestyle Ii Moderate | Vanguard Total vs. Target Retirement 2040 | Vanguard Total vs. Transamerica Cleartrack Retirement | Vanguard Total vs. Wisdomtree Siegel Moderate |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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