Correlation Between Vanguard Short-term and High-yield Municipal
Can any of the company-specific risk be diversified away by investing in both Vanguard Short-term and High-yield 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 Short-term and High-yield Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Short Term Investment Grade and High Yield Municipal Fund, you can compare the effects of market volatilities on Vanguard Short-term and High-yield 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 Short-term with a short position of High-yield Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and High-yield Municipal.
Diversification Opportunities for Vanguard Short-term and High-yield Municipal
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and High-yield is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Investment and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal and Vanguard Short-term 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 Short Term Investment Grade are associated (or correlated) with High-yield Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of Vanguard Short-term i.e., Vanguard Short-term and High-yield Municipal go up and down completely randomly.
Pair Corralation between Vanguard Short-term and High-yield Municipal
Assuming the 90 days horizon Vanguard Short Term Investment Grade is expected to under-perform the High-yield Municipal. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Short Term Investment Grade is 2.67 times less risky than High-yield Municipal. The mutual fund trades about -0.12 of its potential returns per unit of risk. The High Yield Municipal Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 885.00 in High Yield Municipal Fund on August 24, 2024 and sell it today you would earn a total of 11.00 from holding High Yield Municipal Fund or generate 1.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Short Term Investment vs. High Yield Municipal Fund
Performance |
| Timeline |
| Vanguard Short Term |
| High Yield Municipal |
Vanguard Short-term and High-yield Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Short-term and High-yield Municipal
The main advantage of trading using opposite Vanguard Short-term and High-yield Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short-term position performs unexpectedly, High-yield 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 High-yield Municipal will offset losses from the drop in High-yield Municipal's long position.The idea behind Vanguard Short Term Investment Grade and High Yield Municipal 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.
| High-yield Municipal vs. Munivest Fund | High-yield Municipal vs. Blackrock Muniholdings Quality | High-yield Municipal vs. DWS Municipal Income | High-yield Municipal vs. Blackrock Muniholdings Closed |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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