Correlation Between Vanguard Long-term and Franklin Federal
Can any of the company-specific risk be diversified away by investing in both Vanguard Long-term and Franklin Federal 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 Franklin Federal 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 Franklin Federal Tax Free, you can compare the effects of market volatilities on Vanguard Long-term and Franklin Federal 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 Franklin Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Long-term and Franklin Federal.
Diversification Opportunities for Vanguard Long-term and Franklin Federal
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Franklin is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Long Term Tax Exempt and Franklin Federal Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Federal Tax 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 Franklin Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Federal Tax has no effect on the direction of Vanguard Long-term i.e., Vanguard Long-term and Franklin Federal go up and down completely randomly.
Pair Corralation between Vanguard Long-term and Franklin Federal
Assuming the 90 days horizon Vanguard Long-term is expected to generate 1.08 times less return on investment than Franklin Federal. In addition to that, Vanguard Long-term is 1.02 times more volatile than Franklin Federal Tax Free. It trades about 0.15 of its total potential returns per unit of risk. Franklin Federal Tax Free is currently generating about 0.16 per unit of volatility. If you would invest 1,083 in Franklin Federal Tax Free on August 28, 2024 and sell it today you would earn a total of 13.00 from holding Franklin Federal Tax Free or generate 1.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Long Term Tax Exempt vs. Franklin Federal Tax Free
Performance |
| Timeline |
| Vanguard Long Term |
| Franklin Federal Tax |
Vanguard Long-term and Franklin Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Long-term and Franklin Federal
The main advantage of trading using opposite Vanguard Long-term and Franklin Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Long-term position performs unexpectedly, Franklin Federal 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 Franklin Federal will offset losses from the drop in Franklin Federal's long position.The idea behind Vanguard Long Term Tax Exempt and Franklin Federal Tax Free 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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