Correlation Between Vanguard High-yield and Modern Capital
Can any of the company-specific risk be diversified away by investing in both Vanguard High-yield and Modern Capital 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 Modern Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard High Yield Porate and Modern Capital Tactical, you can compare the effects of market volatilities on Vanguard High-yield and Modern Capital 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 Modern Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard High-yield and Modern Capital.
Diversification Opportunities for Vanguard High-yield and Modern Capital
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Modern is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Yield Porate and Modern Capital Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modern Capital Tactical 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 Porate are associated (or correlated) with Modern Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modern Capital Tactical has no effect on the direction of Vanguard High-yield i.e., Vanguard High-yield and Modern Capital go up and down completely randomly.
Pair Corralation between Vanguard High-yield and Modern Capital
Assuming the 90 days horizon Vanguard High-yield is expected to generate 4.6 times less return on investment than Modern Capital. But when comparing it to its historical volatility, Vanguard High Yield Porate is 2.53 times less risky than Modern Capital. It trades about 0.21 of its potential returns per unit of risk. Modern Capital Tactical is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 1,225 in Modern Capital Tactical on August 31, 2024 and sell it today you would earn a total of 42.00 from holding Modern Capital Tactical or generate 3.43% 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 Porate vs. Modern Capital Tactical
Performance |
| Timeline |
| Vanguard High Yield |
| Modern Capital Tactical |
Vanguard High-yield and Modern Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard High-yield and Modern Capital
The main advantage of trading using opposite Vanguard High-yield and Modern Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard High-yield position performs unexpectedly, Modern Capital 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 Modern Capital will offset losses from the drop in Modern Capital's long position.The idea behind Vanguard High Yield Porate and Modern Capital Tactical 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.
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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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