Correlation Between Vanguard High-yield and Vanguard California
Can any of the company-specific risk be diversified away by investing in both Vanguard High-yield and Vanguard California 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 High-yield and Vanguard California into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard High Yield Tax Exempt and Vanguard California Intermediate Term, you can compare the effects of market volatilities on Vanguard High-yield and Vanguard California 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 High-yield with a short position of Vanguard California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard High-yield and Vanguard California.
Diversification Opportunities for Vanguard High-yield and Vanguard California
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 High Yield Tax Exempt and Vanguard California Intermedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard California and Vanguard High-yield 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 High Yield Tax Exempt are associated (or correlated) with Vanguard California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard California has no effect on the direction of Vanguard High-yield i.e., Vanguard High-yield and Vanguard California go up and down completely randomly.
Pair Corralation between Vanguard High-yield and Vanguard California
Assuming the 90 days horizon Vanguard High Yield Tax Exempt is expected to generate 1.49 times more return on investment than Vanguard California. However, Vanguard High-yield is 1.49 times more volatile than Vanguard California Intermediate Term. It trades about 0.06 of its potential returns per unit of risk. Vanguard California Intermediate Term is currently generating about 0.06 per unit of risk. If you would invest 981.00 in Vanguard High Yield Tax Exempt on November 4, 2024 and sell it today you would earn a total of 85.00 from holding Vanguard High Yield Tax Exempt or generate 8.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard High Yield Tax Exempt vs. Vanguard California Intermedia
Performance |
| Timeline |
| Vanguard High Yield |
| Vanguard California |
Vanguard High-yield and Vanguard California Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard High-yield and Vanguard California
The main advantage of trading using opposite Vanguard High-yield and Vanguard California positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard High-yield position performs unexpectedly, Vanguard California 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 California will offset losses from the drop in Vanguard California's long position.The idea behind Vanguard High Yield Tax Exempt and Vanguard California Intermediate Term 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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