Correlation Between Vanguard Tax and Vanguard Materials

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

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

Diversification Opportunities for Vanguard Tax and Vanguard Materials

0.82

Correlation Coefficient

Vanguard Tax  Vanguard Materials

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Tax Managed Small Cap and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index and Vanguard Tax 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 Tax Managed Small Cap are associated (or correlated) with Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Vanguard Tax i.e., Vanguard Tax and Vanguard Materials go up and down completely randomly.

Pair Corralation between Vanguard Tax and Vanguard Materials

Assuming the 90 days horizon Vanguard Tax Managed Small Cap is expected to generate 1.98 times more return on investment than Vanguard Materials. However, Vanguard Tax is 1.98 times more volatile than Vanguard Materials Index. It trades about 0.2 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.0 per unit of risk. If you would invest  9,431  in Vanguard Tax Managed Small Cap on August 12, 2024 and sell it today you would earn a total of  659.00  from holding Vanguard Tax Managed Small Cap or generate 6.99% return on investment over 90 days.

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

Vanguard Tax Managed Small Cap  vs.  Vanguard Materials Index

Vanguard Tax Managed

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Tax Managed Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Tax showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Materials Index

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Materials Index are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Materials may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Tax and Vanguard Materials

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

The idea behind Vanguard Tax Managed Small Cap and Vanguard Materials Index 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.