Correlation Between Vanguard Total and Principal Active

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

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

Diversification Opportunities for Vanguard Total and Principal Active

0.46

Correlation Coefficient

Vanguard Total  Principal Active

Very weak diversification

The 3 months correlation between Vanguard and Principal is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and Principal Active High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Active High and Vanguard Total 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 Total Bond are associated (or correlated) with Principal Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Active High has no effect on the direction of Vanguard Total i.e., Vanguard Total and Principal Active go up and down completely randomly.

Pair Corralation between Vanguard Total and Principal Active

Considering the 90-day investment horizon Vanguard Total Bond is expected to generate 1.18 times more return on investment than Principal Active. However, Vanguard Total is 1.18 times more volatile than Principal Active High. It trades about 0.13 of its potential returns per unit of risk. Principal Active High is currently generating about 0.06 per unit of risk. If you would invest  7,158  in Vanguard Total Bond on December 30, 2024 and sell it today you would earn a total of  174.00  from holding Vanguard Total Bond or generate 2.43% return on investment over 90 days.

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

Vanguard Total Bond  vs.  Principal Active High

Vanguard Total Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Bond are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Principal Active High

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Active High are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Principal Active is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Total and Principal Active

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

The idea behind Vanguard Total Bond and Principal Active High 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.