Correlation Between Vanguard New and Vanguard Inflation

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

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

Diversification Opportunities for Vanguard New and Vanguard Inflation

0.71

Correlation Coefficient

Vanguard New  Vanguard Inflation

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard New York and Vanguard Inflation Protected S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Inflation and Vanguard New 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 New York are associated (or correlated) with Vanguard Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Inflation has no effect on the direction of Vanguard New i.e., Vanguard New and Vanguard Inflation go up and down completely randomly.

Pair Corralation between Vanguard New and Vanguard Inflation

Assuming the 90 days horizon Vanguard New is expected to generate 1.67 times less return on investment than Vanguard Inflation. But when comparing it to its historical volatility, Vanguard New York is 1.0 times less risky than Vanguard Inflation. It trades about 0.18 of its potential returns per unit of risk. Vanguard Inflation Protected Securities is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  2,278  in Vanguard Inflation Protected Securities on November 28, 2024 and sell it today you would earn a total of  39.00  from holding Vanguard Inflation Protected Securities or generate 1.71% return on investment over 90 days.

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

Vanguard New York  vs.  Vanguard Inflation Protected S

Vanguard New York

Risk-Adjusted Performance

Very Weak

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

Vanguard Inflation

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Inflation Protected Securities are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Inflation 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 New and Vanguard Inflation

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

The idea behind Vanguard New York and Vanguard Inflation Protected 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.