Correlation Between Vanguard Short and American Funds

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

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

Diversification Opportunities for Vanguard Short and American Funds

0.92

Correlation Coefficient

Vanguard Short  American Funds

Almost no diversification

The 3 months correlation between Vanguard and American is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Porate and American Funds Lege in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Lege 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 Porate are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Lege has no effect on the direction of Vanguard Short i.e., Vanguard Short and American Funds go up and down completely randomly.

Pair Corralation between Vanguard Short and American Funds

Assuming the 90 days horizon Vanguard Short Term Porate is expected to generate 0.78 times more return on investment than American Funds. However, Vanguard Short Term Porate is 1.28 times less risky than American Funds. It trades about -0.02 of its potential returns per unit of risk. American Funds Lege is currently generating about -0.02 per unit of risk. If you would invest  2,142  in Vanguard Short Term Porate on September 12, 2024 and sell it today you would lose (4.00) from holding Vanguard Short Term Porate or give up 0.19% of portfolio value over 90 days.

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

Vanguard Short Term Porate  vs.  American Funds Lege

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Funds Lege

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Lege has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, American Funds 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 Short and American Funds

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

The idea behind Vanguard Short Term Porate and American Funds Lege 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.