Correlation Between Vanguard Extended and Inverse Government
Can any of the company-specific risk be diversified away by investing in both Vanguard Extended and Inverse Government 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 Extended and Inverse Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Extended Market and Inverse Government Long, you can compare the effects of market volatilities on Vanguard Extended and Inverse Government 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 Extended with a short position of Inverse Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and Inverse Government.
Diversification Opportunities for Vanguard Extended and Inverse Government
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Inverse is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long and Vanguard Extended 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 Extended Market are associated (or correlated) with Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and Inverse Government go up and down completely randomly.
Pair Corralation between Vanguard Extended and Inverse Government
Assuming the 90 days horizon Vanguard Extended Market is expected to generate 1.26 times more return on investment than Inverse Government. However, Vanguard Extended is 1.26 times more volatile than Inverse Government Long. It trades about 0.39 of its potential returns per unit of risk. Inverse Government Long is currently generating about -0.02 per unit of risk. If you would invest 13,953 in Vanguard Extended Market on September 2, 2024 and sell it today you would earn a total of 1,604 from holding Vanguard Extended Market or generate 11.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Extended Market vs. Inverse Government Long
Performance |
| Timeline |
| Vanguard Extended Market |
| Inverse Government Long |
Vanguard Extended and Inverse Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Extended and Inverse Government
The main advantage of trading using opposite Vanguard Extended and Inverse Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Extended position performs unexpectedly, Inverse Government 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 Inverse Government will offset losses from the drop in Inverse Government's long position.| Vanguard Extended vs. Dunham High Yield | Vanguard Extended vs. Fidelity Capital Income | Vanguard Extended vs. Mesirow Financial High | Vanguard Extended vs. Valic Company I |
| Inverse Government vs. T Rowe Price | Inverse Government vs. Ms Global Fixed | Inverse Government vs. Morgan Stanley Global | Inverse Government vs. Artisan Global Unconstrained |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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