Correlation Between State Street and Vanguard Target

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

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

Diversification Opportunities for State Street and Vanguard Target

0.98

Correlation Coefficient

State Street  Vanguard Target

Almost no diversification

The 3 months correlation between State and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding State Street Target 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 State Street 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 State Street Target 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 State Street i.e., State Street and Vanguard Target go up and down completely randomly.

Pair Corralation between State Street and Vanguard Target

Assuming the 90 days horizon State Street is expected to generate 1.25 times less return on investment than Vanguard Target. In addition to that, State Street is 1.09 times more volatile than Vanguard Target Retirement. It trades about 0.05 of its total potential returns per unit of risk. Vanguard Target Retirement is currently generating about 0.07 per unit of volatility. If you would invest  1,967  in Vanguard Target Retirement on October 9, 2024 and sell it today you would earn a total of  444.00  from holding Vanguard Target Retirement or generate 22.57% return on investment over 90 days.

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

State Street Target  vs.  Vanguard Target Retirement

State Street Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Target has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward-looking indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund 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 technical 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 State Street and Vanguard Target

The main advantage of trading using opposite State Street and Vanguard Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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 State Street Target 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.