Correlation Between Bond Fund and Vanguard Energy

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

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

Diversification Opportunities for Bond Fund and Vanguard Energy

-0.09

Correlation Coefficient

Bond Fund  Vanguard Energy

Good diversification

The 3 months correlation between BOND and Vanguard is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Bond Fund Class and Vanguard Energy Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy Index and Bond Fund 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 Bond Fund Class are associated (or correlated) with Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy Index has no effect on the direction of Bond Fund i.e., Bond Fund and Vanguard Energy go up and down completely randomly.

Pair Corralation between Bond Fund and Vanguard Energy

Assuming the 90 days horizon Bond Fund is expected to generate 3.82 times less return on investment than Vanguard Energy. But when comparing it to its historical volatility, Bond Fund Class is 4.27 times less risky than Vanguard Energy. It trades about 0.14 of its potential returns per unit of risk. Vanguard Energy Index is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,878  in Vanguard Energy Index on December 20, 2024 and sell it today you would earn a total of  564.00  from holding Vanguard Energy Index or generate 9.6% return on investment over 90 days.

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

Bond Fund Class  vs.  Vanguard Energy Index

Bond Fund Class

Risk-Adjusted Performance

Good

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

Vanguard Energy Index

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Bond Fund and Vanguard Energy

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

The idea behind Bond Fund Class and Vanguard Energy 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.