Correlation Between Vanguard Small-cap and High-yield Municipal
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and High-yield Municipal 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 High-yield Municipal 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 High Yield Municipal Fund, you can compare the effects of market volatilities on Vanguard Small-cap and High-yield Municipal 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 High-yield Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and High-yield Municipal.
Diversification Opportunities for Vanguard Small-cap and High-yield Municipal
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Vanguard and High-yield is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal 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 High-yield Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and High-yield Municipal go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and High-yield Municipal
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 3.14 times more return on investment than High-yield Municipal. However, Vanguard Small-cap is 3.14 times more volatile than High Yield Municipal Fund. It trades about 0.39 of its potential returns per unit of risk. High Yield Municipal Fund is currently generating about 0.14 per unit of risk. If you would invest 11,289 in Vanguard Small Cap Index on September 1, 2024 and sell it today you would earn a total of 1,153 from holding Vanguard Small Cap Index or generate 10.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. High Yield Municipal Fund
Performance |
| Timeline |
| Vanguard Small Cap |
| High Yield Municipal |
Vanguard Small-cap and High-yield Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and High-yield Municipal
The main advantage of trading using opposite Vanguard Small-cap and High-yield Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, High-yield Municipal 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 High-yield Municipal will offset losses from the drop in High-yield Municipal's long position.| Vanguard Small-cap vs. Vanguard Mid Cap Index | Vanguard Small-cap vs. Vanguard 500 Index | Vanguard Small-cap vs. Vanguard Emerging Markets | Vanguard Small-cap vs. Vanguard Reit Index |
| High-yield Municipal vs. High Yield Fund Investor | High-yield Municipal vs. Intermediate Term Tax Free Bond | High-yield Municipal vs. California High Yield Municipal | High-yield Municipal vs. T Rowe Price |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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