Correlation Between Vanguard Short-term and Madison High

Can any of the company-specific risk be diversified away by investing in both Vanguard Short-term and Madison High 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 Short-term and Madison High into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Short Term Bond and Madison High Quality, you can compare the effects of market volatilities on Vanguard Short-term and Madison High 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 Short-term with a short position of Madison High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and Madison High.

Diversification Opportunities for Vanguard Short-term and Madison High

0.85

Correlation Coefficient

Vanguard Short-term  Madison High

Very poor diversification

The 3 months correlation between Vanguard and Madison is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Bond and Madison High Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison High Quality and Vanguard Short-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 Short Term Bond are associated (or correlated) with Madison High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison High Quality has no effect on the direction of Vanguard Short-term i.e., Vanguard Short-term and Madison High go up and down completely randomly.

Pair Corralation between Vanguard Short-term and Madison High

Assuming the 90 days horizon Vanguard Short Term Bond is expected to under-perform the Madison High. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Short Term Bond is 1.49 times less risky than Madison High. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Madison High Quality is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,050  in Madison High Quality on February 6, 2025 and sell it today you would earn a total of  2.00  from holding Madison High Quality or generate 0.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Vanguard Short Term Bond  vs.  Madison High Quality

Vanguard Short Term

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Bond are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Short-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Madison High Quality

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison High Quality are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Madison High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Short-term and Madison High

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

The idea behind Vanguard Short Term Bond and Madison High Quality 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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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.