Correlation Between Vanguard Small-cap and Tax Exempt
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Tax Exempt 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 Small-cap and Tax Exempt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Index and Tax Exempt Bond Fund, you can compare the effects of market volatilities on Vanguard Small-cap and Tax Exempt 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 Small-cap with a short position of Tax Exempt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Tax Exempt.
Diversification Opportunities for Vanguard Small-cap and Tax Exempt
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Vanguard and Tax is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Tax Exempt Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond and Vanguard Small-cap 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 Small Cap Index are associated (or correlated) with Tax Exempt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Tax Exempt go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Tax Exempt
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 5.5 times more return on investment than Tax Exempt. However, Vanguard Small-cap is 5.5 times more volatile than Tax Exempt Bond Fund. It trades about 0.4 of its potential returns per unit of risk. Tax Exempt Bond Fund is currently generating about 0.25 per unit of risk. If you would invest 32,583 in Vanguard Small Cap Index on September 1, 2024 and sell it today you would earn a total of 3,422 from holding Vanguard Small Cap Index or generate 10.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Tax Exempt Bond Fund
Performance |
| Timeline |
| Vanguard Small Cap |
| Tax Exempt Bond |
Vanguard Small-cap and Tax Exempt Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Tax Exempt
The main advantage of trading using opposite Vanguard Small-cap and Tax Exempt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Tax Exempt 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 Tax Exempt will offset losses from the drop in Tax Exempt's long position.| Vanguard Small-cap vs. Hartford Healthcare Hls | Vanguard Small-cap vs. Alger Health Sciences | Vanguard Small-cap vs. Alphacentric Lifesci Healthcare | Vanguard Small-cap vs. Tekla Healthcare Opportunities |
| Tax Exempt vs. International Developed Markets | Tax Exempt vs. Global Real Estate | Tax Exempt vs. Global Real Estate | Tax Exempt vs. Global Real Estate |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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