Correlation Between Vanguard Inflation and Vanguard Growth

Can any of the company-specific risk be diversified away by investing in both Vanguard Inflation and Vanguard Growth 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 Vanguard Growth 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 Vanguard Growth Index, you can compare the effects of market volatilities on Vanguard Inflation and Vanguard Growth 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 Vanguard Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Inflation and Vanguard Growth.

Diversification Opportunities for Vanguard Inflation and Vanguard Growth

-0.54

Correlation Coefficient

Vanguard Inflation  Vanguard Growth

Excellent diversification

The 3 months correlation between Vanguard and Vanguard is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Inflation Protected S and Vanguard Growth Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Index 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 Vanguard Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth Index has no effect on the direction of Vanguard Inflation i.e., Vanguard Inflation and Vanguard Growth go up and down completely randomly.

Pair Corralation between Vanguard Inflation and Vanguard Growth

Assuming the 90 days horizon Vanguard Inflation is expected to generate 25.78 times less return on investment than Vanguard Growth. But when comparing it to its historical volatility, Vanguard Inflation Protected Securities is 2.95 times less risky than Vanguard Growth. It trades about 0.01 of its potential returns per unit of risk. Vanguard Growth Index is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  11,500  in Vanguard Growth Index on October 7, 2024 and sell it today you would earn a total of  9,938  from holding Vanguard Growth Index or generate 86.42% return on investment over 90 days.

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

Vanguard Inflation Protected S  vs.  Vanguard Growth Index

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.

Vanguard Growth Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Growth may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard Inflation and Vanguard Growth

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

The idea behind Vanguard Inflation Protected Securities and Vanguard Growth Index 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.