Correlation Between Vanguard Short and Vanguard Long

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

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

Diversification Opportunities for Vanguard Short and Vanguard Long

0.88

Correlation Coefficient

Vanguard Short  Vanguard Long

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Treasury and Vanguard Long Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Long 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 Treasury are associated (or correlated) with Vanguard Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Long Term has no effect on the direction of Vanguard Short i.e., Vanguard Short and Vanguard Long go up and down completely randomly.

Pair Corralation between Vanguard Short and Vanguard Long

Given the investment horizon of 90 days Vanguard Short is expected to generate 1.5 times less return on investment than Vanguard Long. But when comparing it to its historical volatility, Vanguard Short Term Treasury is 8.15 times less risky than Vanguard Long. It trades about 0.3 of its potential returns per unit of risk. Vanguard Long Term Treasury is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5,516  in Vanguard Long Term Treasury on December 29, 2024 and sell it today you would earn a total of  124.00  from holding Vanguard Long Term Treasury or generate 2.25% return on investment over 90 days.

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

Vanguard Short Term Treasury  vs.  Vanguard Long Term Treasury

Vanguard Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Treasury are ranked lower than 23 (%) 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.

Vanguard Long Term

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Long Term Treasury are ranked lower than 4 (%) 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.

Pair Trading with Vanguard Short and Vanguard Long

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

The idea behind Vanguard Short Term Treasury and Vanguard Long Term Treasury 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.