Correlation Between Vanguard High-yield and Vanguard Short-term
Can any of the company-specific risk be diversified away by investing in both Vanguard High-yield and Vanguard Short-term 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 Short-term 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 Short Term Investment Grade, you can compare the effects of market volatilities on Vanguard High-yield and Vanguard Short-term 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 Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard High-yield and Vanguard Short-term.
Diversification Opportunities for Vanguard High-yield and Vanguard Short-term
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Yield Tax Exempt and Vanguard Short Term Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term 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 Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of Vanguard High-yield i.e., Vanguard High-yield and Vanguard Short-term go up and down completely randomly.
Pair Corralation between Vanguard High-yield and Vanguard Short-term
Assuming the 90 days horizon Vanguard High Yield Tax Exempt is expected to generate 2.55 times more return on investment than Vanguard Short-term. However, Vanguard High-yield is 2.55 times more volatile than Vanguard Short Term Investment Grade. It trades about 0.14 of its potential returns per unit of risk. Vanguard Short Term Investment Grade is currently generating about -0.12 per unit of risk. If you would invest 1,069 in Vanguard High Yield Tax Exempt on August 28, 2024 and sell it today you would earn a total of 12.00 from holding Vanguard High Yield Tax Exempt or generate 1.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard High Yield Tax Exempt vs. Vanguard Short Term Investment
Performance |
| Timeline |
| Vanguard High Yield |
| Vanguard Short Term |
Vanguard High-yield and Vanguard Short-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard High-yield and Vanguard Short-term
The main advantage of trading using opposite Vanguard High-yield and Vanguard Short-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard High-yield position performs unexpectedly, Vanguard Short-term 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 Short-term will offset losses from the drop in Vanguard Short-term's long position.The idea behind Vanguard High Yield Tax Exempt and Vanguard Short Term Investment Grade 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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