Correlation Between Vanguard Short and Sextant Short

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

By analyzing existing cross correlation between Vanguard Short Term Investment Grade and Sextant Short Term Bond, you can compare the effects of market volatilities on Vanguard Short and Sextant Short 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 Sextant Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short and Sextant Short.

Diversification Opportunities for Vanguard Short and Sextant Short

0.86

Correlation Coefficient

Vanguard Short  Sextant Short

Very poor diversification

The 3 months correlation between Vanguard and Sextant is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Investment and Sextant Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sextant Short Term 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 Investment Grade are associated (or correlated) with Sextant Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sextant Short Term has no effect on the direction of Vanguard Short i.e., Vanguard Short and Sextant Short go up and down completely randomly.

Pair Corralation between Vanguard Short and Sextant Short

Assuming the 90 days horizon Vanguard Short Term Investment Grade is expected to under-perform the Sextant Short. In addition to that, Vanguard Short is 1.38 times more volatile than Sextant Short Term Bond. It trades about -0.06 of its total potential returns per unit of risk. Sextant Short Term Bond is currently generating about -0.03 per unit of volatility. If you would invest  496.00  in Sextant Short Term Bond on September 14, 2024 and sell it today you would lose (1.00) from holding Sextant Short Term Bond or give up 0.2% of portfolio value over 90 days.

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

Vanguard Short Term Investment  vs.  Sextant Short Term Bond

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sextant Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sextant Short Term Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Sextant Short 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 Short and Sextant Short

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

The idea behind Vanguard Short Term Investment Grade and Sextant Short Term 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.