Correlation Between Vanguard Intermediate and Vanguard Long

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

By analyzing existing cross correlation between Vanguard Intermediate Term Tax Exempt and Vanguard Long Term Investment Grade, you can compare the effects of market volatilities on Vanguard Intermediate and Vanguard Long 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 Intermediate with a short position of Vanguard Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Intermediate and Vanguard Long.

Diversification Opportunities for Vanguard Intermediate and Vanguard Long

0.92

Correlation Coefficient

Vanguard Intermediate  Vanguard Long

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Intermediate Term Tax and Vanguard Long Term Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Long Term and Vanguard Intermediate 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 Intermediate Term Tax Exempt are associated (or correlated) with Vanguard Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Long Term has no effect on the direction of Vanguard Intermediate i.e., Vanguard Intermediate and Vanguard Long go up and down completely randomly.

Pair Corralation between Vanguard Intermediate and Vanguard Long

Assuming the 90 days horizon Vanguard Intermediate is expected to generate 2.28 times less return on investment than Vanguard Long. But when comparing it to its historical volatility, Vanguard Intermediate Term Tax Exempt is 3.79 times less risky than Vanguard Long. It trades about 0.16 of its potential returns per unit of risk. Vanguard Long Term Investment Grade is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  773.00  in Vanguard Long Term Investment Grade on July 11, 2024 and sell it today you would earn a total of  27.00  from holding Vanguard Long Term Investment Grade or generate 3.49% return on investment over 90 days.

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

Vanguard Intermediate Term Tax  vs.  Vanguard Long Term Investment

Vanguard Intermediate

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Intermediate Term Tax Exempt are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Intermediate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Long Term

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Long Term Investment Grade are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Long 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 Intermediate and Vanguard Long

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

The idea behind Vanguard Intermediate Term Tax Exempt and Vanguard Long Term Investment Grade 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.