Correlation Between Vanguard California and Inflation Protection
Can any of the company-specific risk be diversified away by investing in both Vanguard California and Inflation Protection 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 California and Inflation Protection into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard California Long Term and Inflation Protection Fund, you can compare the effects of market volatilities on Vanguard California and Inflation Protection 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 California with a short position of Inflation Protection. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard California and Inflation Protection.
Diversification Opportunities for Vanguard California and Inflation Protection
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Inflation is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard California Long Term and Inflation Protection Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protection and Vanguard California 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 California Long Term are associated (or correlated) with Inflation Protection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protection has no effect on the direction of Vanguard California i.e., Vanguard California and Inflation Protection go up and down completely randomly.
Pair Corralation between Vanguard California and Inflation Protection
Assuming the 90 days horizon Vanguard California Long Term is expected to generate 0.75 times more return on investment than Inflation Protection. However, Vanguard California Long Term is 1.33 times less risky than Inflation Protection. It trades about 0.08 of its potential returns per unit of risk. Inflation Protection Fund is currently generating about 0.04 per unit of risk. If you would invest 1,049 in Vanguard California Long Term on September 13, 2024 and sell it today you would earn a total of 116.00 from holding Vanguard California Long Term or generate 11.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard California Long Term vs. Inflation Protection Fund
Performance |
| Timeline |
| Vanguard California |
| Inflation Protection |
Vanguard California and Inflation Protection Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard California and Inflation Protection
The main advantage of trading using opposite Vanguard California and Inflation Protection positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard California position performs unexpectedly, Inflation Protection 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 Inflation Protection will offset losses from the drop in Inflation Protection's long position.The idea behind Vanguard California Long Term and Inflation Protection 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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