Correlation Between Vanguard Limited-term and Vanguard Inflation
Can any of the company-specific risk be diversified away by investing in both Vanguard Limited-term and Vanguard Inflation 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 Limited-term and Vanguard Inflation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Limited Term Tax Exempt and Vanguard Inflation Protected Securities, you can compare the effects of market volatilities on Vanguard Limited-term and Vanguard Inflation 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 Limited-term with a short position of Vanguard Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Limited-term and Vanguard Inflation.
Diversification Opportunities for Vanguard Limited-term and Vanguard Inflation
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Vanguard and Vanguard is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Limited Term Tax Exem and Vanguard Inflation Protected S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Inflation and Vanguard Limited-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 Limited Term Tax Exempt are associated (or correlated) with Vanguard Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Inflation has no effect on the direction of Vanguard Limited-term i.e., Vanguard Limited-term and Vanguard Inflation go up and down completely randomly.
Pair Corralation between Vanguard Limited-term and Vanguard Inflation
Assuming the 90 days horizon Vanguard Limited-term is expected to generate 1.82 times less return on investment than Vanguard Inflation. But when comparing it to its historical volatility, Vanguard Limited Term Tax Exempt is 2.51 times less risky than Vanguard Inflation. It trades about 0.23 of its potential returns per unit of risk. Vanguard Inflation Protected Securities is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,244 in Vanguard Inflation Protected Securities on October 20, 2024 and sell it today you would earn a total of 18.00 from holding Vanguard Inflation Protected Securities or generate 0.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.0% |
| Values | Daily Returns |
Vanguard Limited Term Tax Exem vs. Vanguard Inflation Protected S
Performance |
| Timeline |
| Vanguard Limited Term |
| Vanguard Inflation |
Vanguard Limited-term and Vanguard Inflation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Limited-term and Vanguard Inflation
The main advantage of trading using opposite Vanguard Limited-term and Vanguard Inflation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Limited-term position performs unexpectedly, Vanguard Inflation 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 Inflation will offset losses from the drop in Vanguard Inflation's long position.The idea behind Vanguard Limited Term Tax Exempt and Vanguard Inflation Protected Securities 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 Inflation vs. Vanguard Short Term Investment Grade | Vanguard Inflation vs. Vanguard Gnma Fund | Vanguard Inflation vs. Vanguard High Yield Corporate | Vanguard Inflation vs. Vanguard Total 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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