Correlation Between Vanguard Short-term and Low Duration
Can any of the company-specific risk be diversified away by investing in both Vanguard Short-term and Low Duration 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 Short-term and Low Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Short Term Bond and Low Duration Fund, you can compare the effects of market volatilities on Vanguard Short-term and Low Duration 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 Short-term with a short position of Low Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and Low Duration.
Diversification Opportunities for Vanguard Short-term and Low Duration
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Low is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Bond and Low Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Low Duration and Vanguard Short-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 Vanguard Short Term Bond are associated (or correlated) with Low Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Low Duration has no effect on the direction of Vanguard Short-term i.e., Vanguard Short-term and Low Duration go up and down completely randomly.
Pair Corralation between Vanguard Short-term and Low Duration
Assuming the 90 days horizon Vanguard Short-term is expected to generate 1.16 times less return on investment than Low Duration. In addition to that, Vanguard Short-term is 1.22 times more volatile than Low Duration Fund. It trades about 0.08 of its total potential returns per unit of risk. Low Duration Fund is currently generating about 0.11 per unit of volatility. If you would invest 840.00 in Low Duration Fund on September 2, 2024 and sell it today you would earn a total of 84.00 from holding Low Duration Fund or generate 10.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Short Term Bond vs. Low Duration Fund
Performance |
| Timeline |
| Vanguard Short Term |
| Low Duration |
Vanguard Short-term and Low Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Short-term and Low Duration
The main advantage of trading using opposite Vanguard Short-term and Low Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short-term position performs unexpectedly, Low Duration 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 Low Duration will offset losses from the drop in Low Duration's long position.The idea behind Vanguard Short Term Bond and Low Duration Fund 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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