Correlation Between Liberty All and Vanguard Municipal

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

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

Diversification Opportunities for Liberty All and Vanguard Municipal

0.63

Correlation Coefficient

Liberty All  Vanguard Municipal

Poor diversification

The 3 months correlation between Liberty and Vanguard is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Liberty All Star and Vanguard Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Municipal Bond and Liberty All 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 Liberty All Star are associated (or correlated) with Vanguard Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Municipal Bond has no effect on the direction of Liberty All i.e., Liberty All and Vanguard Municipal go up and down completely randomly.

Pair Corralation between Liberty All and Vanguard Municipal

Considering the 90-day investment horizon Liberty All Star is expected to generate 6.47 times more return on investment than Vanguard Municipal. However, Liberty All is 6.47 times more volatile than Vanguard Municipal Bond. It trades about 0.09 of its potential returns per unit of risk. Vanguard Municipal Bond is currently generating about 0.12 per unit of risk. If you would invest  684.00  in Liberty All Star on September 15, 2024 and sell it today you would earn a total of  30.00  from holding Liberty All Star or generate 4.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.97%
Values	Daily Returns

Liberty All Star  vs.  Vanguard Municipal Bond

Liberty All Star

Risk-Adjusted Performance

6 of 100

Modest

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

Vanguard Municipal Bond

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Municipal Bond are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Liberty All and Vanguard Municipal

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

The idea behind Liberty All Star and Vanguard Municipal 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.