Correlation Between Vanguard Total and Short-term Investment

Can any of the company-specific risk be diversified away by investing in both Vanguard Total and Short-term Investment 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 Short-term Investment 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 Short Term Investment Trust, you can compare the effects of market volatilities on Vanguard Total and Short-term Investment 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 Short-term Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Short-term Investment.

Diversification Opportunities for Vanguard Total and Short-term Investment

0.7

Correlation Coefficient

Vanguard Total  Short-term Investment

Poor diversification

The 3 months correlation between Vanguard and Short-term is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Short Term Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Investment 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 Short-term Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Investment has no effect on the direction of Vanguard Total i.e., Vanguard Total and Short-term Investment go up and down completely randomly.

Pair Corralation between Vanguard Total and Short-term Investment

Assuming the 90 days horizon Vanguard Total Stock is expected to generate 6.11 times more return on investment than Short-term Investment. However, Vanguard Total is 6.11 times more volatile than Short Term Investment Trust. It trades about 0.1 of its potential returns per unit of risk. Short Term Investment Trust is currently generating about 0.13 per unit of risk. If you would invest  23,627  in Vanguard Total Stock on October 7, 2024 and sell it today you would earn a total of  4,465  from holding Vanguard Total Stock or generate 18.9% return on investment over 90 days.

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

Vanguard Total Stock  vs.  Short Term Investment Trust

Vanguard Total Stock

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Term Investment

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Investment Trust are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short-term Investment 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 Short-term Investment

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

The idea behind Vanguard Total Stock and Short Term Investment Trust 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.