Correlation Between Vanguard Tax and Vanguard Index

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

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

Diversification Opportunities for Vanguard Tax and Vanguard Index

-0.28

Correlation Coefficient

Vanguard Tax  Vanguard Index

Very good diversification

The 3 months correlation between Vanguard and Vanguard is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Tax Managed Funds and Vanguard Index Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Index Funds and Vanguard Tax 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 Tax Managed Funds are associated (or correlated) with Vanguard Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Index Funds has no effect on the direction of Vanguard Tax i.e., Vanguard Tax and Vanguard Index go up and down completely randomly.

Pair Corralation between Vanguard Tax and Vanguard Index

Assuming the 90 days trading horizon Vanguard Tax Managed Funds is expected to generate 0.89 times more return on investment than Vanguard Index. However, Vanguard Tax Managed Funds is 1.13 times less risky than Vanguard Index. It trades about 0.13 of its potential returns per unit of risk. Vanguard Index Funds is currently generating about -0.12 per unit of risk. If you would invest  98,195  in Vanguard Tax Managed Funds on December 30, 2024 and sell it today you would earn a total of  6,527  from holding Vanguard Tax Managed Funds or generate 6.65% return on investment over 90 days.

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

Vanguard Tax Managed Funds  vs.  Vanguard Index Funds

Vanguard Tax Managed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Tax Managed Funds are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Tax may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vanguard Index Funds

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Index Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Vanguard Tax and Vanguard Index

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

The idea behind Vanguard Tax Managed Funds and Vanguard Index Funds 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.