Correlation Between Vanguard Short and FlexShares Credit

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

By analyzing existing cross correlation between Vanguard Short Term Corporate and FlexShares Credit Scored Long, you can compare the effects of market volatilities on Vanguard Short and FlexShares Credit 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 Short with a short position of FlexShares Credit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short and FlexShares Credit.

Diversification Opportunities for Vanguard Short and FlexShares Credit

0.79

Correlation Coefficient

Vanguard Short  FlexShares Credit

Poor diversification

The 3 months correlation between Vanguard and FlexShares is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Corporate and FlexShares Credit Scored Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Credit and Vanguard Short 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 Short Term Corporate are associated (or correlated) with FlexShares Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Credit has no effect on the direction of Vanguard Short i.e., Vanguard Short and FlexShares Credit go up and down completely randomly.

Pair Corralation between Vanguard Short and FlexShares Credit

Given the investment horizon of 90 days Vanguard Short Term Corporate is expected to generate 0.2 times more return on investment than FlexShares Credit. However, Vanguard Short Term Corporate is 4.96 times less risky than FlexShares Credit. It trades about 0.26 of its potential returns per unit of risk. FlexShares Credit Scored Long is currently generating about 0.04 per unit of risk. If you would invest  7,748  in Vanguard Short Term Corporate on December 29, 2024 and sell it today you would earn a total of  146.00  from holding Vanguard Short Term Corporate or generate 1.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Vanguard Short Term Corporate  vs.  FlexShares Credit Scored Long

Vanguard Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Corporate are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Short is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

FlexShares Credit

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Credit Scored Long are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, FlexShares Credit is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vanguard Short and FlexShares Credit

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

The idea behind Vanguard Short Term Corporate and FlexShares Credit Scored Long 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.