Correlation Between Vanguard Intermediate-ter and Vanguard Wellesley
Can any of the company-specific risk be diversified away by investing in both Vanguard Intermediate-ter and Vanguard Wellesley 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-ter and Vanguard Wellesley into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Intermediate Term Investment Grade and Vanguard Wellesley Income, you can compare the effects of market volatilities on Vanguard Intermediate-ter and Vanguard Wellesley 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-ter with a short position of Vanguard Wellesley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Intermediate-ter and Vanguard Wellesley.
Diversification Opportunities for Vanguard Intermediate-ter and Vanguard Wellesley
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Vanguard and Vanguard is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Intermediate Term Inv and Vanguard Wellesley Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Wellesley Income and Vanguard Intermediate-ter 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 Investment Grade are associated (or correlated) with Vanguard Wellesley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Wellesley Income has no effect on the direction of Vanguard Intermediate-ter i.e., Vanguard Intermediate-ter and Vanguard Wellesley go up and down completely randomly.
Pair Corralation between Vanguard Intermediate-ter and Vanguard Wellesley
Assuming the 90 days horizon Vanguard Intermediate-ter is expected to generate 1.56 times less return on investment than Vanguard Wellesley. But when comparing it to its historical volatility, Vanguard Intermediate Term Investment Grade is 1.06 times less risky than Vanguard Wellesley. It trades about 0.07 of its potential returns per unit of risk. Vanguard Wellesley Income is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,275 in Vanguard Wellesley Income on August 31, 2024 and sell it today you would earn a total of 375.00 from holding Vanguard Wellesley Income or generate 16.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Intermediate Term Inv vs. Vanguard Wellesley Income
Performance |
| Timeline |
| Vanguard Intermediate-ter |
| Vanguard Wellesley Income |
Vanguard Intermediate-ter and Vanguard Wellesley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Intermediate-ter and Vanguard Wellesley
The main advantage of trading using opposite Vanguard Intermediate-ter and Vanguard Wellesley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Intermediate-ter position performs unexpectedly, Vanguard Wellesley 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 Wellesley will offset losses from the drop in Vanguard Wellesley's long position.The idea behind Vanguard Intermediate Term Investment Grade and Vanguard Wellesley Income 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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