Correlation Between Vanguard Intermediate and Vanguard Emerging
Can any of the company-specific risk be diversified away by investing in both Vanguard Intermediate and Vanguard Emerging 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 Vanguard Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Intermediate Term Corporate and Vanguard Emerging Markets, you can compare the effects of market volatilities on Vanguard Intermediate and Vanguard Emerging 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 Vanguard Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Intermediate and Vanguard Emerging.
Diversification Opportunities for Vanguard Intermediate and Vanguard Emerging
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Intermediate Term Cor and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets 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 Corporate are associated (or correlated) with Vanguard Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of Vanguard Intermediate i.e., Vanguard Intermediate and Vanguard Emerging go up and down completely randomly.
Pair Corralation between Vanguard Intermediate and Vanguard Emerging
Given the investment horizon of 90 days Vanguard Intermediate is expected to generate 1.59 times less return on investment than Vanguard Emerging. But when comparing it to its historical volatility, Vanguard Intermediate Term Corporate is 1.23 times less risky than Vanguard Emerging. It trades about 0.06 of its potential returns per unit of risk. Vanguard Emerging Markets is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5,619 in Vanguard Emerging Markets on August 30, 2024 and sell it today you would earn a total of 884.00 from holding Vanguard Emerging Markets or generate 15.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Intermediate Term Cor vs. Vanguard Emerging Markets
Performance |
| Timeline |
| Vanguard Intermediate |
| Vanguard Emerging Markets |
Vanguard Intermediate and Vanguard Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Intermediate and Vanguard Emerging
The main advantage of trading using opposite Vanguard Intermediate and Vanguard Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Intermediate position performs unexpectedly, Vanguard Emerging 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 Emerging will offset losses from the drop in Vanguard Emerging's long position.The idea behind Vanguard Intermediate Term Corporate and Vanguard Emerging Markets 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.
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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