Correlation Between Vanguard Intermediate and Hartford Municipal
Can any of the company-specific risk be diversified away by investing in both Vanguard Intermediate and Hartford Municipal 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 Intermediate and Hartford Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Intermediate Term Tax Exempt and The Hartford Municipal, you can compare the effects of market volatilities on Vanguard Intermediate and Hartford Municipal 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 Intermediate with a short position of Hartford Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Intermediate and Hartford Municipal.
Diversification Opportunities for Vanguard Intermediate and Hartford Municipal
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Hartford is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Intermediate Term Tax and The Hartford Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Hartford Municipal and Vanguard Intermediate 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 Intermediate Term Tax Exempt are associated (or correlated) with Hartford Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Hartford Municipal has no effect on the direction of Vanguard Intermediate i.e., Vanguard Intermediate and Hartford Municipal go up and down completely randomly.
Pair Corralation between Vanguard Intermediate and Hartford Municipal
Assuming the 90 days horizon Vanguard Intermediate is expected to generate 1.16 times less return on investment than Hartford Municipal. But when comparing it to its historical volatility, Vanguard Intermediate Term Tax Exempt is 1.01 times less risky than Hartford Municipal. It trades about 0.07 of its potential returns per unit of risk. The Hartford Municipal is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 787.00 in The Hartford Municipal on September 1, 2024 and sell it today you would earn a total of 55.00 from holding The Hartford Municipal or generate 6.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.78% |
| Values | Daily Returns |
Vanguard Intermediate Term Tax vs. The Hartford Municipal
Performance |
| Timeline |
| Vanguard Intermediate |
| The Hartford Municipal |
Vanguard Intermediate and Hartford Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Intermediate and Hartford Municipal
The main advantage of trading using opposite Vanguard Intermediate and Hartford Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Intermediate position performs unexpectedly, Hartford Municipal 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 Hartford Municipal will offset losses from the drop in Hartford Municipal's long position.The idea behind Vanguard Intermediate Term Tax Exempt and The Hartford Municipal 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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