Correlation Between Vanguard Total and Pax Core

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

Diversification Opportunities for Vanguard Total and Pax Core

1.0

Correlation Coefficient

Vanguard Total  Pax Core

No risk reduction

The 3 months correlation between Vanguard and Pax is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and Pax E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax E 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 Pax Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax E Bond has no effect on the direction of Vanguard Total i.e., Vanguard Total and Pax Core go up and down completely randomly.

Pair Corralation between Vanguard Total and Pax Core

Assuming the 90 days horizon Vanguard Total Bond is expected to generate 1.07 times more return on investment than Pax Core. However, Vanguard Total is 1.07 times more volatile than Pax E Bond. It trades about -0.41 of its potential returns per unit of risk. Pax E Bond is currently generating about -0.46 per unit of risk. If you would invest  965.00  in Vanguard Total Bond on October 12, 2024 and sell it today you would lose (21.00) from holding Vanguard Total Bond or give up 2.18% of portfolio value over 90 days.

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

Vanguard Total Bond  vs.  Pax E 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.

Pax E Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pax E Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Pax 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 Pax Core

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

The idea behind Vanguard Total Bond and Pax E 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..