Correlation Between Vanguard Tax and Vanguard Total

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

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

Diversification Opportunities for Vanguard Tax and Vanguard Total

0.68

Correlation Coefficient

Vanguard Tax  Vanguard Total

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Tax Exempt Bond and Vanguard Total World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total World and Vanguard Tax 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 Tax Exempt Bond are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total World has no effect on the direction of Vanguard Tax i.e., Vanguard Tax and Vanguard Total go up and down completely randomly.

Pair Corralation between Vanguard Tax and Vanguard Total

Given the investment horizon of 90 days Vanguard Tax Exempt Bond is expected to under-perform the Vanguard Total. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Tax Exempt Bond is 1.09 times less risky than Vanguard Total. The etf trades about -0.05 of its potential returns per unit of risk. The Vanguard Total World is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,789  in Vanguard Total World on December 29, 2024 and sell it today you would earn a total of  85.00  from holding Vanguard Total World or generate 1.25% return on investment over 90 days.

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

Vanguard Tax Exempt Bond  vs.  Vanguard Total World

Vanguard Tax Exempt

Risk-Adjusted Performance

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 current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Total World

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total World are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, Vanguard Total is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Tax and Vanguard Total

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

The idea behind Vanguard Tax Exempt Bond and Vanguard Total World 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.