Correlation Between Vanguard Short-term and Long-term
Can any of the company-specific risk be diversified away by investing in both Vanguard Short-term and 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 Short-term and Long-term into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Short Term Government and Long Term Government Fund, you can compare the effects of market volatilities on Vanguard Short-term and 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 Short-term with a short position of Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and Long-term.
Diversification Opportunities for Vanguard Short-term and Long-term
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Long-term is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Government and Long Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term Government 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 Government are associated (or correlated) with 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 Long Term Government has no effect on the direction of Vanguard Short-term i.e., Vanguard Short-term and Long-term go up and down completely randomly.
Pair Corralation between Vanguard Short-term and Long-term
Assuming the 90 days horizon Vanguard Short-term is expected to generate 19.67 times less return on investment than Long-term. But when comparing it to its historical volatility, Vanguard Short Term Government is 11.18 times less risky than Long-term. It trades about 0.03 of its potential returns per unit of risk. Long Term Government Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,416 in Long Term Government Fund on August 29, 2024 and sell it today you would earn a total of 14.00 from holding Long Term Government Fund or generate 0.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Vanguard Short Term Government vs. Long Term Government Fund
Performance |
| Timeline |
| Vanguard Short Term |
| Long Term Government |
Vanguard Short-term and Long-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Short-term and Long-term
The main advantage of trading using opposite Vanguard Short-term and Long-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short-term position performs unexpectedly, 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 Long-term will offset losses from the drop in Long-term's long position.The idea behind Vanguard Short Term Government and Long Term Government 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.
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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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