Correlation Between Vanguard Extended and SPDR Barclays

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

By analyzing existing cross correlation between Vanguard Extended Duration and SPDR Barclays Long, you can compare the effects of market volatilities on Vanguard Extended and SPDR Barclays 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 Extended with a short position of SPDR Barclays. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and SPDR Barclays.

Diversification Opportunities for Vanguard Extended and SPDR Barclays

0.99

Correlation Coefficient

Vanguard Extended  SPDR Barclays

No risk reduction

The 3 months correlation between Vanguard and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Duration and SPDR Barclays Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays Long and Vanguard Extended 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 Extended Duration are associated (or correlated) with SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays Long has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and SPDR Barclays go up and down completely randomly.

Pair Corralation between Vanguard Extended and SPDR Barclays

Considering the 90-day investment horizon Vanguard Extended Duration is expected to generate 1.6 times more return on investment than SPDR Barclays. However, Vanguard Extended is 1.6 times more volatile than SPDR Barclays Long. It trades about 0.25 of its potential returns per unit of risk. SPDR Barclays Long is currently generating about 0.27 per unit of risk. If you would invest  6,815  in Vanguard Extended Duration on December 1, 2024 and sell it today you would earn a total of  475.00  from holding Vanguard Extended Duration or generate 6.97% return on investment over 90 days.

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

Vanguard Extended Duration  vs.  SPDR Barclays Long

Vanguard Extended

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Extended Duration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Vanguard Extended is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SPDR Barclays Long

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Barclays Long has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, SPDR Barclays is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Vanguard Extended and SPDR Barclays

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

The idea behind Vanguard Extended Duration and SPDR Barclays Long 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.