Correlation Between Vanguard Total and Vanguard Tax

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

By analyzing existing cross correlation between Vanguard Total Corporate and Vanguard Tax Exempt Bond, you can compare the effects of market volatilities on Vanguard Total and Vanguard Tax 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 Vanguard Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Vanguard Tax.

Diversification Opportunities for Vanguard Total and Vanguard Tax

0.65

Correlation Coefficient

Vanguard Total  Vanguard Tax

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Corporate and Vanguard Tax Exempt Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Tax Exempt 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 Corporate are associated (or correlated) with Vanguard Tax. 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 Exempt has no effect on the direction of Vanguard Total i.e., Vanguard Total and Vanguard Tax go up and down completely randomly.

Pair Corralation between Vanguard Total and Vanguard Tax

Considering the 90-day investment horizon Vanguard Total Corporate is expected to under-perform the Vanguard Tax. In addition to that, Vanguard Total is 1.27 times more volatile than Vanguard Tax Exempt Bond. It trades about -0.11 of its total potential returns per unit of risk. Vanguard Tax Exempt Bond is currently generating about -0.02 per unit of volatility. If you would invest  5,065  in Vanguard Tax Exempt Bond on September 16, 2024 and sell it today you would lose (15.00) from holding Vanguard Tax Exempt Bond or give up 0.3% of portfolio value over 90 days.

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

Vanguard Total Corporate  vs.  Vanguard Tax Exempt Bond

Vanguard Total Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Tax Exempt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Tax Exempt Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Vanguard Tax is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Total and Vanguard Tax

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

The idea behind Vanguard Total Corporate and Vanguard Tax Exempt Bond 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.