Correlation Between IShares IBonds and Vanguard Tax

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

By analyzing existing cross correlation between iShares iBonds Dec and Vanguard Tax Exempt Bond, you can compare the effects of market volatilities on IShares IBonds and Vanguard Tax 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 IBonds with a short position of Vanguard Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IBonds and Vanguard Tax.

Diversification Opportunities for IShares IBonds and Vanguard Tax

0.41

Correlation Coefficient

IShares IBonds  Vanguard Tax

Very weak diversification

The 3 months correlation between IShares and Vanguard is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBonds Dec and Vanguard Tax Exempt Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Tax Exempt and IShares IBonds 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 iBonds Dec are associated (or correlated) with Vanguard Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Tax Exempt has no effect on the direction of IShares IBonds i.e., IShares IBonds and Vanguard Tax go up and down completely randomly.

Pair Corralation between IShares IBonds and Vanguard Tax

Given the investment horizon of 90 days IShares IBonds is expected to generate 1.72 times less return on investment than Vanguard Tax. But when comparing it to its historical volatility, iShares iBonds Dec is 2.19 times less risky than Vanguard Tax. It trades about 0.19 of its potential returns per unit of risk. Vanguard Tax Exempt Bond is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,993  in Vanguard Tax Exempt Bond on December 5, 2024 and sell it today you would earn a total of  37.00  from holding Vanguard Tax Exempt Bond or generate 0.74% return on investment over 90 days.

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

iShares iBonds Dec  vs.  Vanguard Tax Exempt Bond

iShares iBonds Dec

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares iBonds Dec are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, IShares IBonds is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Tax Exempt

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Tax Exempt Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Vanguard Tax 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 IBonds and Vanguard Tax

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

The idea behind iShares iBonds Dec and Vanguard Tax Exempt Bond 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.