Correlation Between California Bond and Vanguard Emerging

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

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

Diversification Opportunities for California Bond and Vanguard Emerging

0.23

Correlation Coefficient

California Bond  Vanguard Emerging

Modest diversification

The 3 months correlation between California and Vanguard is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets and California Bond 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 California Bond Fund are associated (or correlated) with Vanguard Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of California Bond i.e., California Bond and Vanguard Emerging go up and down completely randomly.

Pair Corralation between California Bond and Vanguard Emerging

Assuming the 90 days horizon California Bond Fund is expected to generate 0.39 times more return on investment than Vanguard Emerging. However, California Bond Fund is 2.56 times less risky than Vanguard Emerging. It trades about -0.04 of its potential returns per unit of risk. Vanguard Emerging Markets is currently generating about -0.04 per unit of risk. If you would invest  1,027  in California Bond Fund on October 23, 2024 and sell it today you would lose (2.00) from holding California Bond Fund or give up 0.19% of portfolio value over 90 days.

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

California Bond Fund  vs.  Vanguard Emerging Markets

California Bond

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in California Bond Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, California Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with California Bond and Vanguard Emerging

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

The idea behind California Bond Fund and Vanguard Emerging Markets 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.