Correlation Between Tax-managed International and Vanguard Inflation-protec

Can any of the company-specific risk be diversified away by investing in both Tax-managed International and Vanguard Inflation-protec 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 Tax-managed International and Vanguard Inflation-protec into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tax Managed International Equity and Vanguard Inflation Protected Securities, you can compare the effects of market volatilities on Tax-managed International and Vanguard Inflation-protec 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 Tax-managed International with a short position of Vanguard Inflation-protec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed International and Vanguard Inflation-protec.

Diversification Opportunities for Tax-managed International and Vanguard Inflation-protec

0.42

Correlation Coefficient

Tax-managed International  Vanguard Inflation-protec

Very weak diversification

The 3 months correlation between Tax-managed and VANGUARD is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed International Equi and Vanguard Inflation Protected S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Inflation-protec and Tax-managed International 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 Tax Managed International Equity are associated (or correlated) with Vanguard Inflation-protec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Inflation-protec has no effect on the direction of Tax-managed International i.e., Tax-managed International and Vanguard Inflation-protec go up and down completely randomly.

Pair Corralation between Tax-managed International and Vanguard Inflation-protec

Assuming the 90 days horizon Tax Managed International Equity is expected to under-perform the Vanguard Inflation-protec. In addition to that, Tax-managed International is 3.71 times more volatile than Vanguard Inflation Protected Securities. It trades about -0.05 of its total potential returns per unit of risk. Vanguard Inflation Protected Securities is currently generating about 0.17 per unit of volatility. If you would invest  911.00  in Vanguard Inflation Protected Securities on January 10, 2025 and sell it today you would earn a total of  31.00  from holding Vanguard Inflation Protected Securities or generate 3.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Tax Managed International Equi  vs.  Vanguard Inflation Protected S

Tax-managed International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tax Managed International Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Tax-managed International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Inflation-protec

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Inflation Protected Securities are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Inflation-protec is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tax-managed International and Vanguard Inflation-protec

The main advantage of trading using opposite Tax-managed International and Vanguard Inflation-protec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-managed International position performs unexpectedly, Vanguard Inflation-protec 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 Vanguard Inflation-protec will offset losses from the drop in Vanguard Inflation-protec's long position.

The idea behind Tax Managed International Equity and Vanguard Inflation Protected Securities 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.