Correlation Between Vanguard 500 and Tax Managed

Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Tax Managed 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 500 and Tax Managed into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard 500 Index and Tax Managed Large Cap, you can compare the effects of market volatilities on Vanguard 500 and Tax Managed 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 500 with a short position of Tax Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Tax Managed.

Diversification Opportunities for Vanguard 500 and Tax Managed

1.0

Correlation Coefficient

Vanguard 500  Tax Managed

No risk reduction

The 3 months correlation between Vanguard and Tax is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Tax Managed Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Managed Large and Vanguard 500 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 500 Index are associated (or correlated) with Tax Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Managed Large has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Tax Managed go up and down completely randomly.

Pair Corralation between Vanguard 500 and Tax Managed

Assuming the 90 days horizon Vanguard 500 Index is expected to generate 1.04 times more return on investment than Tax Managed. However, Vanguard 500 is 1.04 times more volatile than Tax Managed Large Cap. It trades about 0.23 of its potential returns per unit of risk. Tax Managed Large Cap is currently generating about 0.22 per unit of risk. If you would invest  26,088  in Vanguard 500 Index on August 12, 2024 and sell it today you would earn a total of  3,275  from holding Vanguard 500 Index or generate 12.55% return on investment over 90 days.

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

Vanguard 500 Index  vs.  Tax Managed Large Cap

Vanguard 500 Index

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard 500 Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard 500 may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Tax Managed Large

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed Large Cap are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Tax Managed may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard 500 and Tax Managed

The main advantage of trading using opposite Vanguard 500 and Tax Managed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, Tax Managed 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 Tax Managed will offset losses from the drop in Tax Managed's long position.

The idea behind Vanguard 500 Index and Tax Managed Large Cap 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.