Correlation Between Vanguard Extended and US Treasury

Can any of the company-specific risk be diversified away by investing in both Vanguard Extended and US Treasury 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 US Treasury 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 US Treasury 6, you can compare the effects of market volatilities on Vanguard Extended and US Treasury 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 US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and US Treasury.

Diversification Opportunities for Vanguard Extended and US Treasury

0.6

Correlation Coefficient

Vanguard Extended  US Treasury

Poor diversification

The 3 months correlation between Vanguard and XBIL is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Duration and US Treasury 6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 6 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 US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 6 has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and US Treasury go up and down completely randomly.

Pair Corralation between Vanguard Extended and US Treasury

Considering the 90-day investment horizon Vanguard Extended Duration is expected to generate 50.95 times more return on investment than US Treasury. However, Vanguard Extended is 50.95 times more volatile than US Treasury 6. It trades about 0.05 of its potential returns per unit of risk. US Treasury 6 is currently generating about 0.73 per unit of risk. If you would invest  6,800  in Vanguard Extended Duration on December 28, 2024 and sell it today you would earn a total of  207.00  from holding Vanguard Extended Duration or generate 3.04% return on investment over 90 days.

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

Vanguard Extended Duration  vs.  US Treasury 6

Vanguard Extended

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Duration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

US Treasury 6

Risk-Adjusted Performance

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in US Treasury 6 are ranked lower than 57 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, US Treasury is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Vanguard Extended and US Treasury

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

The idea behind Vanguard Extended Duration and US Treasury 6 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.