Correlation Between Vanguard Materials and Vanguard Tax-managed

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

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

Diversification Opportunities for Vanguard Materials and Vanguard Tax-managed

0.54

Correlation Coefficient

Vanguard Materials  Vanguard Tax-managed

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Vanguard Tax Managed Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Tax Managed and Vanguard Materials 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 Materials Index are associated (or correlated) with Vanguard Tax-managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Tax Managed has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Vanguard Tax-managed go up and down completely randomly.

Pair Corralation between Vanguard Materials and Vanguard Tax-managed

Assuming the 90 days horizon Vanguard Materials Index is expected to under-perform the Vanguard Tax-managed. In addition to that, Vanguard Materials is 1.1 times more volatile than Vanguard Tax Managed Capital. It trades about -0.13 of its total potential returns per unit of risk. Vanguard Tax Managed Capital is currently generating about -0.03 per unit of volatility. If you would invest  15,468  in Vanguard Tax Managed Capital on November 29, 2024 and sell it today you would lose (245.00) from holding Vanguard Tax Managed Capital or give up 1.58% of portfolio value over 90 days.

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

Vanguard Materials Index  vs.  Vanguard Tax Managed Capital

Vanguard Materials Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Materials Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Vanguard Tax Managed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Tax Managed Capital has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Vanguard Tax-managed 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 Materials and Vanguard Tax-managed

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

The idea behind Vanguard Materials Index and Vanguard Tax Managed Capital 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.