Correlation Between Vanguard Tax and VanEck Intermediate

Can any of the company-specific risk be diversified away by investing in both Vanguard Tax and VanEck Intermediate 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 VanEck Intermediate 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 VanEck Intermediate Muni, you can compare the effects of market volatilities on Vanguard Tax and VanEck Intermediate 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 VanEck Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Tax and VanEck Intermediate.

Diversification Opportunities for Vanguard Tax and VanEck Intermediate

0.97

Correlation Coefficient

Vanguard Tax  VanEck Intermediate

Almost no diversification

The 3 months correlation between Vanguard and VanEck is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Tax Exempt Bond and VanEck Intermediate Muni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Intermediate Muni 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 VanEck Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Intermediate Muni has no effect on the direction of Vanguard Tax i.e., Vanguard Tax and VanEck Intermediate go up and down completely randomly.

Pair Corralation between Vanguard Tax and VanEck Intermediate

Given the investment horizon of 90 days Vanguard Tax Exempt Bond is expected to generate 0.98 times more return on investment than VanEck Intermediate. However, Vanguard Tax Exempt Bond is 1.02 times less risky than VanEck Intermediate. It trades about -0.05 of its potential returns per unit of risk. VanEck Intermediate Muni is currently generating about -0.08 per unit of risk. If you would invest  4,988  in Vanguard Tax Exempt Bond on December 29, 2024 and sell it today you would lose (34.00) from holding Vanguard Tax Exempt Bond or give up 0.68% of portfolio value over 90 days.

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

Vanguard Tax Exempt Bond  vs.  VanEck Intermediate Muni

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.

VanEck Intermediate Muni

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Intermediate Muni has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, VanEck Intermediate is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Tax and VanEck Intermediate

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

The idea behind Vanguard Tax Exempt Bond and VanEck Intermediate Muni 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.