Correlation Between Vanguard Emerging and Vanguard Long-term
Can any of the company-specific risk be diversified away by investing in both Vanguard Emerging and Vanguard Long-term 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 Emerging and Vanguard Long-term into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Emerging Markets and Vanguard Long Term Porate, you can compare the effects of market volatilities on Vanguard Emerging and Vanguard Long-term 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 Emerging with a short position of Vanguard Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Emerging and Vanguard Long-term.
Diversification Opportunities for Vanguard Emerging and Vanguard Long-term
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Emerging Markets and Vanguard Long Term Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Long Term and Vanguard Emerging 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 Emerging Markets are associated (or correlated) with Vanguard Long-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Long Term has no effect on the direction of Vanguard Emerging i.e., Vanguard Emerging and Vanguard Long-term go up and down completely randomly.
Pair Corralation between Vanguard Emerging and Vanguard Long-term
Assuming the 90 days horizon Vanguard Emerging is expected to generate 2.72 times less return on investment than Vanguard Long-term. But when comparing it to its historical volatility, Vanguard Emerging Markets is 2.27 times less risky than Vanguard Long-term. It trades about 0.15 of its potential returns per unit of risk. Vanguard Long Term Porate is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 2,051 in Vanguard Long Term Porate on September 2, 2024 and sell it today you would earn a total of 62.00 from holding Vanguard Long Term Porate or generate 3.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Emerging Markets vs. Vanguard Long Term Porate
Performance |
| Timeline |
| Vanguard Emerging Markets |
| Vanguard Long Term |
Vanguard Emerging and Vanguard Long-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Emerging and Vanguard Long-term
The main advantage of trading using opposite Vanguard Emerging and Vanguard Long-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Emerging position performs unexpectedly, Vanguard Long-term 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 Long-term will offset losses from the drop in Vanguard Long-term's long position.| Vanguard Emerging vs. Vanguard E Bond | Vanguard Emerging vs. Vanguard Emerging Markets | Vanguard Emerging vs. Vanguard Ultra Short Term Bond |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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