Correlation Between Vanguard Long and Vanguard Mortgage

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

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

Diversification Opportunities for Vanguard Long and Vanguard Mortgage

0.98

Correlation Coefficient

Vanguard Long  Vanguard Mortgage

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Long Term Treasury and Vanguard Mortgage Backed Secur in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mortgage and Vanguard Long 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 Long Term Treasury are associated (or correlated) with Vanguard Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mortgage has no effect on the direction of Vanguard Long i.e., Vanguard Long and Vanguard Mortgage go up and down completely randomly.

Pair Corralation between Vanguard Long and Vanguard Mortgage

Given the investment horizon of 90 days Vanguard Long Term Treasury is expected to generate 2.23 times more return on investment than Vanguard Mortgage. However, Vanguard Long is 2.23 times more volatile than Vanguard Mortgage Backed Securities. It trades about 0.08 of its potential returns per unit of risk. Vanguard Mortgage Backed Securities is currently generating about 0.12 per unit of risk. If you would invest  5,472  in Vanguard Long Term Treasury on December 27, 2024 and sell it today you would earn a total of  185.00  from holding Vanguard Long Term Treasury or generate 3.38% return on investment over 90 days.

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

Vanguard Long Term Treasury  vs.  Vanguard Mortgage Backed Secur

Vanguard Long Term

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Long Term Treasury are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Vanguard Long is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Mortgage

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mortgage Backed Securities are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Vanguard Mortgage is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Long and Vanguard Mortgage

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

The idea behind Vanguard Long Term Treasury and Vanguard Mortgage Backed Securities 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.