Correlation Between Ishares Municipal and Vanguard Mega

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

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

Diversification Opportunities for Ishares Municipal and Vanguard Mega

0.49

Correlation Coefficient

Ishares Municipal  Vanguard Mega

Very weak diversification

The 3 months correlation between Ishares and Vanguard is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Municipal Bond and Vanguard Mega Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mega Cap and Ishares Municipal 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 Ishares Municipal Bond are associated (or correlated) with Vanguard Mega. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mega Cap has no effect on the direction of Ishares Municipal i.e., Ishares Municipal and Vanguard Mega go up and down completely randomly.

Pair Corralation between Ishares Municipal and Vanguard Mega

Assuming the 90 days horizon Ishares Municipal Bond is expected to under-perform the Vanguard Mega. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ishares Municipal Bond is 3.24 times less risky than Vanguard Mega. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Vanguard Mega Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  24,689  in Vanguard Mega Cap on December 30, 2024 and sell it today you would earn a total of  563.00  from holding Vanguard Mega Cap or generate 2.28% return on investment over 90 days.

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

Ishares Municipal Bond  vs.  Vanguard Mega Cap

Ishares Municipal Bond

Risk-Adjusted Performance

Very Weak

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

Vanguard Mega Cap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mega Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Vanguard Mega is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ishares Municipal and Vanguard Mega

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

The idea behind Ishares Municipal Bond and Vanguard Mega 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.