Correlation Between Vanguard High-yield and American High
Can any of the company-specific risk be diversified away by investing in both Vanguard High-yield and American 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 American 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 American High Income, you can compare the effects of market volatilities on Vanguard High-yield and American 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 American High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard High-yield and American High.
Diversification Opportunities for Vanguard High-yield and American High
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and American is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Yield Corporate and American High Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American High Income 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 American High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American High Income has no effect on the direction of Vanguard High-yield i.e., Vanguard High-yield and American High go up and down completely randomly.
Pair Corralation between Vanguard High-yield and American High
Assuming the 90 days horizon Vanguard High-yield is expected to generate 1.28 times less return on investment than American High. In addition to that, Vanguard High-yield is 1.02 times more volatile than American High Income. It trades about 0.14 of its total potential returns per unit of risk. American High Income is currently generating about 0.18 per unit of volatility. If you would invest 827.00 in American High Income on August 31, 2024 and sell it today you would earn a total of 158.00 from holding American High Income or generate 19.11% 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. American High Income
Performance |
| Timeline |
| Vanguard High Yield |
| American High Income |
Vanguard High-yield and American High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard High-yield and American High
The main advantage of trading using opposite Vanguard High-yield and American High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard High-yield position performs unexpectedly, American 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 American High will offset losses from the drop in American High's long position.The idea behind Vanguard High Yield Corporate and American High 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.
| American High vs. Vanguard High Yield Corporate | American High vs. Vanguard High Yield Porate | American High vs. Blackrock Hi Yld | American High vs. Blackrock High Yield |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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