Correlation Between Mmzbx and Vanguard Target

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

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

Diversification Opportunities for Mmzbx and Vanguard Target

0.43

Correlation Coefficient

Mmzbx  Vanguard Target

Very weak diversification

The 3 months correlation between Mmzbx and Vanguard is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Mmzbx and Vanguard Target Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Target Reti and Mmzbx 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 Mmzbx are associated (or correlated) with Vanguard Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Target Reti has no effect on the direction of Mmzbx i.e., Mmzbx and Vanguard Target go up and down completely randomly.

Pair Corralation between Mmzbx and Vanguard Target

Assuming the 90 days horizon Mmzbx is expected to generate 4.9 times more return on investment than Vanguard Target. However, Mmzbx is 4.9 times more volatile than Vanguard Target Retirement. It trades about 0.01 of its potential returns per unit of risk. Vanguard Target Retirement is currently generating about -0.01 per unit of risk. If you would invest  1,220  in Mmzbx on September 30, 2024 and sell it today you would lose (14.00) from holding Mmzbx or give up 1.15% of portfolio value over 90 days.

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

Mmzbx  vs.  Vanguard Target Retirement

Mmzbx

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Target Reti

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Mmzbx and Vanguard Target

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

The idea behind Mmzbx and Vanguard Target Retirement 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.