Correlation Between Vanguard Short and Sextant Short
Can any of the company-specific risk be diversified away by investing in both Vanguard Short and Sextant Short 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 and Sextant Short 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 Sextant Short Term Bond, you can compare the effects of market volatilities on Vanguard Short and Sextant Short 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 with a short position of Sextant Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short and Sextant Short.
Diversification Opportunities for Vanguard Short and Sextant Short
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Sextant is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Bond and Sextant Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sextant Short Term and Vanguard Short 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 Sextant Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sextant Short Term has no effect on the direction of Vanguard Short i.e., Vanguard Short and Sextant Short go up and down completely randomly.
Pair Corralation between Vanguard Short and Sextant Short
Assuming the 90 days horizon Vanguard Short Term Bond is expected to generate 1.52 times more return on investment than Sextant Short. However, Vanguard Short is 1.52 times more volatile than Sextant Short Term Bond. It trades about 0.08 of its potential returns per unit of risk. Sextant Short Term Bond is currently generating about 0.11 per unit of risk. If you would invest 935.00 in Vanguard Short Term Bond on September 14, 2024 and sell it today you would earn a total of 81.00 from holding Vanguard Short Term Bond or generate 8.66% 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. Sextant Short Term Bond
Performance |
| Timeline |
| Vanguard Short Term |
| Sextant Short Term |
Vanguard Short and Sextant Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Short and Sextant Short
The main advantage of trading using opposite Vanguard Short and Sextant Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short position performs unexpectedly, Sextant Short 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 Sextant Short will offset losses from the drop in Sextant Short's long position.The idea behind Vanguard Short Term Bond and Sextant Short Term Bond 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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