Correlation Between Long-term and Vanguard Extended

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

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

Diversification Opportunities for Long-term and Vanguard Extended

0.99

Correlation Coefficient

Long-term  Vanguard Extended

No risk reduction

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

Pair Corralation between Long-term and Vanguard Extended

Assuming the 90 days horizon Long Term Government Fund is expected to generate 0.64 times more return on investment than Vanguard Extended. However, Long Term Government Fund is 1.56 times less risky than Vanguard Extended. It trades about 0.09 of its potential returns per unit of risk. Vanguard Extended Duration is currently generating about 0.05 per unit of risk. If you would invest  1,364  in Long Term Government Fund on December 29, 2024 and sell it today you would earn a total of  51.00  from holding Long Term Government Fund or generate 3.74% return on investment over 90 days.

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

Long Term Government Fund  vs.  Vanguard Extended Duration

Long Term Government

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Long Term Government Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Long-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Extended

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Duration are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Extended is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Long-term and Vanguard Extended

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

The idea behind Long Term Government Fund and Vanguard Extended Duration 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.