Correlation Between Vanguard Long-term and Dreyfus Municipal
Can any of the company-specific risk be diversified away by investing in both Vanguard Long-term and Dreyfus 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 Long-term and Dreyfus Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Long Term Tax Exempt and Dreyfus Municipal Bond, you can compare the effects of market volatilities on Vanguard Long-term and Dreyfus 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 Long-term with a short position of Dreyfus Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Long-term and Dreyfus Municipal.
Diversification Opportunities for Vanguard Long-term and Dreyfus Municipal
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Dreyfus is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Long Term Tax Exempt and Dreyfus Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Municipal Bond and Vanguard Long-term 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 Long Term Tax Exempt are associated (or correlated) with Dreyfus Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Municipal Bond has no effect on the direction of Vanguard Long-term i.e., Vanguard Long-term and Dreyfus Municipal go up and down completely randomly.
Pair Corralation between Vanguard Long-term and Dreyfus Municipal
Assuming the 90 days horizon Vanguard Long Term Tax Exempt is expected to generate 1.08 times more return on investment than Dreyfus Municipal. However, Vanguard Long-term is 1.08 times more volatile than Dreyfus Municipal Bond. It trades about 0.15 of its potential returns per unit of risk. Dreyfus Municipal Bond is currently generating about 0.14 per unit of risk. If you would invest 1,081 in Vanguard Long Term Tax Exempt on August 25, 2024 and sell it today you would earn a total of 12.00 from holding Vanguard Long Term Tax Exempt or generate 1.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Long Term Tax Exempt vs. Dreyfus Municipal Bond
Performance |
| Timeline |
| Vanguard Long Term |
| Dreyfus Municipal Bond |
Vanguard Long-term and Dreyfus Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Long-term and Dreyfus Municipal
The main advantage of trading using opposite Vanguard Long-term and Dreyfus Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Long-term position performs unexpectedly, Dreyfus 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 Dreyfus Municipal will offset losses from the drop in Dreyfus Municipal's long position.The idea behind Vanguard Long Term Tax Exempt and Dreyfus Municipal Bond 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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