Correlation Between Vanguard Financials and Wilmington Municipal
Can any of the company-specific risk be diversified away by investing in both Vanguard Financials and Wilmington Municipal 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 Financials and Wilmington Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Financials Index and Wilmington Municipal Bond, you can compare the effects of market volatilities on Vanguard Financials and Wilmington Municipal 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 Financials with a short position of Wilmington Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and Wilmington Municipal.
Diversification Opportunities for Vanguard Financials and Wilmington Municipal
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between VANGUARD and Wilmington is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Wilmington Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmington Municipal Bond and Vanguard Financials 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 Financials Index are associated (or correlated) with Wilmington Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmington Municipal Bond has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Wilmington Municipal go up and down completely randomly.
Pair Corralation between Vanguard Financials and Wilmington Municipal
Assuming the 90 days horizon Vanguard Financials Index is expected to generate 6.28 times more return on investment than Wilmington Municipal. However, Vanguard Financials is 6.28 times more volatile than Wilmington Municipal Bond. It trades about 0.27 of its potential returns per unit of risk. Wilmington Municipal Bond is currently generating about 0.18 per unit of risk. If you would invest 5,751 in Vanguard Financials Index on August 31, 2024 and sell it today you would earn a total of 567.00 from holding Vanguard Financials Index or generate 9.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Financials Index vs. Wilmington Municipal Bond
Performance |
| Timeline |
| Vanguard Financials Index |
| Wilmington Municipal Bond |
Vanguard Financials and Wilmington Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Financials and Wilmington Municipal
The main advantage of trading using opposite Vanguard Financials and Wilmington Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials position performs unexpectedly, Wilmington Municipal 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 Wilmington Municipal will offset losses from the drop in Wilmington Municipal's long position.The idea behind Vanguard Financials Index and Wilmington Municipal 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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