Correlation Between Vanguard Total and Payden Floating

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

By analyzing existing cross correlation between Vanguard Total Stock and Payden Floating Rate, you can compare the effects of market volatilities on Vanguard Total and Payden Floating 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 Total with a short position of Payden Floating. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Payden Floating.

Diversification Opportunities for Vanguard Total and Payden Floating

0.88

Correlation Coefficient

Vanguard Total  Payden Floating

Very poor diversification

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

Pair Corralation between Vanguard Total and Payden Floating

Assuming the 90 days horizon Vanguard Total Stock is expected to generate 10.08 times more return on investment than Payden Floating. However, Vanguard Total is 10.08 times more volatile than Payden Floating Rate. It trades about 0.08 of its potential returns per unit of risk. Payden Floating Rate is currently generating about 0.37 per unit of risk. If you would invest  12,472  in Vanguard Total Stock on September 20, 2024 and sell it today you would earn a total of  1,659  from holding Vanguard Total Stock or generate 13.3% return on investment over 90 days.

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

Vanguard Total Stock  vs.  Payden Floating Rate

Vanguard Total Stock

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Payden Floating Rate

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Payden Floating Rate are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Payden Floating 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 Total and Payden Floating

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

The idea behind Vanguard Total Stock and Payden Floating Rate 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.