Correlation Between Vanguard Inflation and Inflation Linked

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

By analyzing existing cross correlation between Vanguard Inflation Protected Securities and Inflation Linked Fixed Income, you can compare the effects of market volatilities on Vanguard Inflation and Inflation Linked 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 Vanguard Inflation with a short position of Inflation Linked. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Inflation and Inflation Linked.

Diversification Opportunities for Vanguard Inflation and Inflation Linked

0.95

Correlation Coefficient

Vanguard Inflation  Inflation Linked

Almost no diversification

The 3 months correlation between Vanguard and Inflation is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Inflation Protected S and Inflation Linked Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Linked Fixed and Vanguard Inflation 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 Vanguard Inflation Protected Securities are associated (or correlated) with Inflation Linked. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Linked Fixed has no effect on the direction of Vanguard Inflation i.e., Vanguard Inflation and Inflation Linked go up and down completely randomly.

Pair Corralation between Vanguard Inflation and Inflation Linked

Assuming the 90 days horizon Vanguard Inflation Protected Securities is expected to under-perform the Inflation Linked. In addition to that, Vanguard Inflation is 1.18 times more volatile than Inflation Linked Fixed Income. It trades about -0.18 of its total potential returns per unit of risk. Inflation Linked Fixed Income is currently generating about -0.16 per unit of volatility. If you would invest  828.00  in Inflation Linked Fixed Income on October 9, 2024 and sell it today you would lose (24.00) from holding Inflation Linked Fixed Income or give up 2.9% of portfolio value over 90 days.

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

Vanguard Inflation Protected S  vs.  Inflation Linked Fixed Income

Vanguard Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Inflation Linked Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Inflation and Inflation Linked

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

The idea behind Vanguard Inflation Protected Securities and Inflation Linked Fixed Income 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.