Correlation Between Vanguard Tax-managed and Vanguard Strategic
Can any of the company-specific risk be diversified away by investing in both Vanguard Tax-managed and Vanguard Strategic 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 Vanguard Strategic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Tax Managed Small Cap and Vanguard Strategic Small Cap, you can compare the effects of market volatilities on Vanguard Tax-managed and Vanguard Strategic 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 Vanguard Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Tax-managed and Vanguard Strategic.
Diversification Opportunities for Vanguard Tax-managed and Vanguard Strategic
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and VANGUARD is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Tax Managed Small Cap and Vanguard Strategic Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Strategic 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 Small Cap are associated (or correlated) with Vanguard Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Strategic has no effect on the direction of Vanguard Tax-managed i.e., Vanguard Tax-managed and Vanguard Strategic go up and down completely randomly.
Pair Corralation between Vanguard Tax-managed and Vanguard Strategic
Assuming the 90 days horizon Vanguard Tax-managed is expected to generate 1.04 times less return on investment than Vanguard Strategic. In addition to that, Vanguard Tax-managed is 1.1 times more volatile than Vanguard Strategic Small Cap. It trades about 0.25 of its total potential returns per unit of risk. Vanguard Strategic Small Cap is currently generating about 0.29 per unit of volatility. If you would invest 4,221 in Vanguard Strategic Small Cap on August 26, 2024 and sell it today you would earn a total of 413.00 from holding Vanguard Strategic Small Cap or generate 9.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Tax Managed Small Cap vs. Vanguard Strategic Small Cap
Performance |
| Timeline |
| Vanguard Tax Managed |
| Vanguard Strategic |
Vanguard Tax-managed and Vanguard Strategic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Tax-managed and Vanguard Strategic
The main advantage of trading using opposite Vanguard Tax-managed and Vanguard Strategic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Tax-managed position performs unexpectedly, Vanguard Strategic 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 Strategic will offset losses from the drop in Vanguard Strategic's long position.The idea behind Vanguard Tax Managed Small Cap and Vanguard Strategic Small Cap 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.
| Vanguard Strategic vs. Vanguard Explorer Value | Vanguard Strategic vs. Vanguard Strategic Equity | Vanguard Strategic vs. Vanguard Diversified Equity | Vanguard Strategic vs. Vanguard Mid Cap |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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