Correlation Between Short Duration and Vanguard Short-term

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

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

Diversification Opportunities for Short Duration and Vanguard Short-term

0.8

Correlation Coefficient

Short Duration  Vanguard Short-term

Very poor diversification

The 3 months correlation between Short and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Inflation and Vanguard Short Term Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term and Short Duration 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 Short Duration Inflation are associated (or correlated) with Vanguard Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of Short Duration i.e., Short Duration and Vanguard Short-term go up and down completely randomly.

Pair Corralation between Short Duration and Vanguard Short-term

Assuming the 90 days horizon Short Duration Inflation is expected to under-perform the Vanguard Short-term. In addition to that, Short Duration is 1.91 times more volatile than Vanguard Short Term Inflation Protected. It trades about -0.12 of its total potential returns per unit of risk. Vanguard Short Term Inflation Protected is currently generating about -0.08 per unit of volatility. If you would invest  2,452  in Vanguard Short Term Inflation Protected on October 8, 2024 and sell it today you would lose (22.00) from holding Vanguard Short Term Inflation Protected or give up 0.9% of portfolio value over 90 days.

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

Short Duration Inflation  vs.  Vanguard Short Term Inflation

Short Duration Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Duration Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Short Duration is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Short Term Inflation Protected has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with Short Duration and Vanguard Short-term

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

The idea behind Short Duration Inflation and Vanguard Short Term Inflation Protected 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.