Correlation Between Vanguard Tax-managed and Icon Equity
Can any of the company-specific risk be diversified away by investing in both Vanguard Tax-managed and Icon Equity 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 Tax-managed and Icon Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Tax Managed Balanced and Icon Equity Income, you can compare the effects of market volatilities on Vanguard Tax-managed and Icon Equity 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 Tax-managed with a short position of Icon Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Tax-managed and Icon Equity.
Diversification Opportunities for Vanguard Tax-managed and Icon Equity
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Icon is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Tax Managed Balanced and Icon Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Equity Income and Vanguard Tax-managed 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 Tax Managed Balanced are associated (or correlated) with Icon Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Equity Income has no effect on the direction of Vanguard Tax-managed i.e., Vanguard Tax-managed and Icon Equity go up and down completely randomly.
Pair Corralation between Vanguard Tax-managed and Icon Equity
Assuming the 90 days horizon Vanguard Tax Managed Balanced is expected to generate 0.66 times more return on investment than Icon Equity. However, Vanguard Tax Managed Balanced is 1.52 times less risky than Icon Equity. It trades about 0.12 of its potential returns per unit of risk. Icon Equity Income is currently generating about 0.05 per unit of risk. If you would invest 3,597 in Vanguard Tax Managed Balanced on September 3, 2024 and sell it today you would earn a total of 1,038 from holding Vanguard Tax Managed Balanced or generate 28.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Tax Managed Balanced vs. Icon Equity Income
Performance |
| Timeline |
| Vanguard Tax Managed |
| Icon Equity Income |
Vanguard Tax-managed and Icon Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Tax-managed and Icon Equity
The main advantage of trading using opposite Vanguard Tax-managed and Icon Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Tax-managed position performs unexpectedly, Icon Equity 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 Icon Equity will offset losses from the drop in Icon Equity's long position.The idea behind Vanguard Tax Managed Balanced and Icon Equity Income 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.
| Icon Equity vs. Icon Equity Income | Icon Equity vs. American Beacon Balanced | Icon Equity vs. Lord Abbett Value | Icon Equity vs. Victory Floating Rate |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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