Correlation Between Vanguard Total and Madison Core

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

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

Diversification Opportunities for Vanguard Total and Madison Core

0.98

Correlation Coefficient

Vanguard Total  Madison Core

Almost no diversification

The 3 months correlation between Vanguard and Madison is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and Madison Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Core Bond and Vanguard Total 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 Total Bond are associated (or correlated) with Madison Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Core Bond has no effect on the direction of Vanguard Total i.e., Vanguard Total and Madison Core go up and down completely randomly.

Pair Corralation between Vanguard Total and Madison Core

Assuming the 90 days horizon Vanguard Total is expected to generate 1.07 times less return on investment than Madison Core. In addition to that, Vanguard Total is 1.06 times more volatile than Madison Core Bond. It trades about 0.1 of its total potential returns per unit of risk. Madison Core Bond is currently generating about 0.11 per unit of volatility. If you would invest  880.00  in Madison Core Bond on October 24, 2024 and sell it today you would earn a total of  5.00  from holding Madison Core Bond or generate 0.57% return on investment over 90 days.

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

Vanguard Total Bond  vs.  Madison Core Bond

Vanguard Total Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Madison Core Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Core Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Madison Core 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 Total and Madison Core

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

The idea behind Vanguard Total Bond and Madison Core 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.