Correlation Between Vanguard Inflation-protec and Vanguard Energy
Can any of the company-specific risk be diversified away by investing in both Vanguard Inflation-protec and Vanguard Energy 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 Inflation-protec and Vanguard Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Inflation Protected Securities and Vanguard Energy Fund, you can compare the effects of market volatilities on Vanguard Inflation-protec and Vanguard Energy 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 Inflation-protec with a short position of Vanguard Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Inflation-protec and Vanguard Energy.
Diversification Opportunities for Vanguard Inflation-protec and Vanguard Energy
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Vanguard and Vanguard is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Inflation Protected S and Vanguard Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy and Vanguard Inflation-protec 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 Inflation Protected Securities are associated (or correlated) with Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy has no effect on the direction of Vanguard Inflation-protec i.e., Vanguard Inflation-protec and Vanguard Energy go up and down completely randomly.
Pair Corralation between Vanguard Inflation-protec and Vanguard Energy
Assuming the 90 days horizon Vanguard Inflation-protec is expected to generate 25.12 times less return on investment than Vanguard Energy. But when comparing it to its historical volatility, Vanguard Inflation Protected Securities is 2.33 times less risky than Vanguard Energy. It trades about 0.01 of its potential returns per unit of risk. Vanguard Energy Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 5,131 in Vanguard Energy Fund on August 29, 2024 and sell it today you would earn a total of 118.00 from holding Vanguard Energy Fund or generate 2.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Inflation Protected S vs. Vanguard Energy Fund
Performance |
| Timeline |
| Vanguard Inflation-protec |
| Vanguard Energy |
Vanguard Inflation-protec and Vanguard Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Inflation-protec and Vanguard Energy
The main advantage of trading using opposite Vanguard Inflation-protec and Vanguard Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Inflation-protec position performs unexpectedly, Vanguard Energy 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 Energy will offset losses from the drop in Vanguard Energy's long position.The idea behind Vanguard Inflation Protected Securities and Vanguard Energy 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.
| Vanguard Energy vs. Vanguard Financials Index | Vanguard Energy vs. Vanguard Utilities Index | Vanguard Energy vs. Vanguard Materials Index | Vanguard Energy vs. Vanguard Sumer Staples |
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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