Correlation Between Nebraska Municipal and Vanguard European

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

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

Diversification Opportunities for Nebraska Municipal and Vanguard European

0.05

Correlation Coefficient

Nebraska Municipal  Vanguard European

Significant diversification

The 3 months correlation between Nebraska and Vanguard is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Nebraska Municipal Fund and Vanguard European Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard European Stock and Nebraska Municipal 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 Nebraska Municipal Fund are associated (or correlated) with Vanguard European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard European Stock has no effect on the direction of Nebraska Municipal i.e., Nebraska Municipal and Vanguard European go up and down completely randomly.

Pair Corralation between Nebraska Municipal and Vanguard European

Assuming the 90 days horizon Nebraska Municipal Fund is expected to under-perform the Vanguard European. But the mutual fund apears to be less risky and, when comparing its historical volatility, Nebraska Municipal Fund is 3.72 times less risky than Vanguard European. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Vanguard European Stock is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  15,195  in Vanguard European Stock on December 24, 2024 and sell it today you would earn a total of  1,902  from holding Vanguard European Stock or generate 12.52% return on investment over 90 days.

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

Nebraska Municipal Fund  vs.  Vanguard European Stock

Nebraska Municipal

Risk-Adjusted Performance

Very Weak

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

Vanguard European Stock

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard European Stock are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard European showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nebraska Municipal and Vanguard European

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

The idea behind Nebraska Municipal Fund and Vanguard European Stock 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.