Correlation Between Vanguard Total and Investment Grade
Can any of the company-specific risk be diversified away by investing in both Vanguard Total and Investment Grade 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 Total and Investment Grade into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Total Bond and Investment Grade Bond, you can compare the effects of market volatilities on Vanguard Total and Investment Grade 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 Total with a short position of Investment Grade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Investment Grade.
Diversification Opportunities for Vanguard Total and Investment Grade
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Investment is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and Investment Grade Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Grade Bond and Vanguard Total 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 Total Bond are associated (or correlated) with Investment Grade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Grade Bond has no effect on the direction of Vanguard Total i.e., Vanguard Total and Investment Grade go up and down completely randomly.
Pair Corralation between Vanguard Total and Investment Grade
Assuming the 90 days horizon Vanguard Total is expected to generate 1.2 times less return on investment than Investment Grade. But when comparing it to its historical volatility, Vanguard Total Bond is 1.02 times less risky than Investment Grade. It trades about 0.07 of its potential returns per unit of risk. Investment Grade Bond is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,831 in Investment Grade Bond on August 28, 2024 and sell it today you would earn a total of 11.00 from holding Investment Grade Bond or generate 0.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Vanguard Total Bond vs. Investment Grade Bond
Performance |
| Timeline |
| Vanguard Total Bond |
| Investment Grade Bond |
Vanguard Total and Investment Grade Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Total and Investment Grade
The main advantage of trading using opposite Vanguard Total and Investment Grade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total position performs unexpectedly, Investment Grade 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 Investment Grade will offset losses from the drop in Investment Grade's long position.| Vanguard Total vs. Vanguard Total International | Vanguard Total vs. Vanguard Total Stock | Vanguard Total vs. Vanguard Total International | Vanguard Total vs. Vanguard 500 Index |
| Investment Grade vs. International Developed Markets | Investment Grade vs. Global Real Estate | Investment Grade vs. Global Real Estate | Investment Grade vs. Global Real Estate |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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