Correlation Between Vanguard Short-term and Vanguard Intermediate
Can any of the company-specific risk be diversified away by investing in both Vanguard Short-term and Vanguard Intermediate 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 Vanguard Intermediate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Short Term Federal and Vanguard Intermediate Term Tax Exempt, you can compare the effects of market volatilities on Vanguard Short-term and Vanguard Intermediate 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 Vanguard Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and Vanguard Intermediate.
Diversification Opportunities for Vanguard Short-term and Vanguard Intermediate
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 Short Term Federal and Vanguard Intermediate Term Tax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Intermediate 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 Federal are associated (or correlated) with Vanguard Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Intermediate has no effect on the direction of Vanguard Short-term i.e., Vanguard Short-term and Vanguard Intermediate go up and down completely randomly.
Pair Corralation between Vanguard Short-term and Vanguard Intermediate
Assuming the 90 days horizon Vanguard Short-term is expected to generate 1.19 times less return on investment than Vanguard Intermediate. But when comparing it to its historical volatility, Vanguard Short Term Federal is 1.2 times less risky than Vanguard Intermediate. It trades about 0.16 of its potential returns per unit of risk. Vanguard Intermediate Term Tax Exempt is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 1,326 in Vanguard Intermediate Term Tax Exempt on September 1, 2024 and sell it today you would earn a total of 48.00 from holding Vanguard Intermediate Term Tax Exempt or generate 3.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Short Term Federal vs. Vanguard Intermediate Term Tax
Performance |
| Timeline |
| Vanguard Short Term |
| Vanguard Intermediate |
Vanguard Short-term and Vanguard Intermediate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Short-term and Vanguard Intermediate
The main advantage of trading using opposite Vanguard Short-term and Vanguard Intermediate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short-term position performs unexpectedly, Vanguard Intermediate 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 Intermediate will offset losses from the drop in Vanguard Intermediate's long position.The idea behind Vanguard Short Term Federal and Vanguard Intermediate Term Tax Exempt 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.
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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