Correlation Between Vanguard High-yield and Prudential High
Can any of the company-specific risk be diversified away by investing in both Vanguard High-yield and Prudential High 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 Prudential High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard High Yield Corporate and Prudential High Yield, you can compare the effects of market volatilities on Vanguard High-yield and Prudential High 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 Prudential High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard High-yield and Prudential High.
Diversification Opportunities for Vanguard High-yield and Prudential High
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Prudential is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Yield Corporate and Prudential High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential High Yield 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 Corporate are associated (or correlated) with Prudential High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential High Yield has no effect on the direction of Vanguard High-yield i.e., Vanguard High-yield and Prudential High go up and down completely randomly.
Pair Corralation between Vanguard High-yield and Prudential High
Assuming the 90 days horizon Vanguard High-yield is expected to generate 1.17 times less return on investment than Prudential High. But when comparing it to its historical volatility, Vanguard High Yield Corporate is 1.15 times less risky than Prudential High. It trades about 0.2 of its potential returns per unit of risk. Prudential High Yield is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 421.00 in Prudential High Yield on September 1, 2024 and sell it today you would earn a total of 62.00 from holding Prudential High Yield or generate 14.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard High Yield Corporate vs. Prudential High Yield
Performance |
| Timeline |
| Vanguard High Yield |
| Prudential High Yield |
Vanguard High-yield and Prudential High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard High-yield and Prudential High
The main advantage of trading using opposite Vanguard High-yield and Prudential High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard High-yield position performs unexpectedly, Prudential High 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 Prudential High will offset losses from the drop in Prudential High's long position.The idea behind Vanguard High Yield Corporate and Prudential High Yield 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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