Correlation Between Vanguard Financials and Aquila Tax-free

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

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

Diversification Opportunities for Vanguard Financials and Aquila Tax-free

0.35

Correlation Coefficient

Vanguard Financials  Aquila Tax-free

Weak diversification

The 3 months correlation between Vanguard and Aquila is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Aquila Tax Free Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aquila Tax Free and Vanguard Financials 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 Financials Index are associated (or correlated) with Aquila Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aquila Tax Free has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Aquila Tax-free go up and down completely randomly.

Pair Corralation between Vanguard Financials and Aquila Tax-free

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 6.04 times more return on investment than Aquila Tax-free. However, Vanguard Financials is 6.04 times more volatile than Aquila Tax Free Trust. It trades about 0.01 of its potential returns per unit of risk. Aquila Tax Free Trust is currently generating about -0.03 per unit of risk. If you would invest  5,915  in Vanguard Financials Index on December 29, 2024 and sell it today you would earn a total of  4.00  from holding Vanguard Financials Index or generate 0.07% return on investment over 90 days.

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

Vanguard Financials Index  vs.  Aquila Tax Free Trust

Vanguard Financials Index

Risk-Adjusted Performance

Very Weak

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

Aquila Tax Free

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aquila Tax Free Trust has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Aquila Tax-free 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 Financials and Aquila Tax-free

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

The idea behind Vanguard Financials Index and Aquila Tax Free Trust 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.