Correlation Between Short-term Government and Vanguard Short-term

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

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

Diversification Opportunities for Short-term Government and Vanguard Short-term

0.99

Correlation Coefficient

Short-term Government  Vanguard Short-term

No risk reduction

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

Pair Corralation between Short-term Government and Vanguard Short-term

Assuming the 90 days horizon Short Term Government Fund is expected to under-perform the Vanguard Short-term. But the mutual fund apears to be less risky and, when comparing its historical volatility, Short Term Government Fund is 1.34 times less risky than Vanguard Short-term. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Vanguard Short Term Bond is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,021  in Vanguard Short Term Bond on September 4, 2024 and sell it today you would lose (4.00) from holding Vanguard Short Term Bond or give up 0.39% of portfolio value over 90 days.

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

Short Term Government Fund  vs.  Vanguard Short Term Bond

Short Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Short-term Government and Vanguard Short-term

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

The idea behind Short Term Government Fund and Vanguard Short Term 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.