Correlation Between Vanguard Tax and IShares National

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

Diversification Opportunities for Vanguard Tax and IShares National

0.85

Correlation Coefficient

Vanguard Tax  IShares National

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Tax Exempt Bond and iShares National Muni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares National 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 IShares National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares National Muni has no effect on the direction of Vanguard Tax i.e., Vanguard Tax and IShares National go up and down completely randomly.

Pair Corralation between Vanguard Tax and IShares National

Given the investment horizon of 90 days Vanguard Tax Exempt Bond is expected to generate 1.0 times more return on investment than IShares National. However, Vanguard Tax Exempt Bond is 1.0 times less risky than IShares National. It trades about 0.06 of its potential returns per unit of risk. iShares National Muni is currently generating about 0.06 per unit of risk. If you would invest  5,052  in Vanguard Tax Exempt Bond on September 4, 2024 and sell it today you would earn a total of  53.00  from holding Vanguard Tax Exempt Bond or generate 1.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Tax Exempt Bond  vs.  iShares National Muni

Vanguard Tax Exempt

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Tax Exempt Bond are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

iShares National Muni

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares National Muni are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares National 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 Tax and IShares National

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

The idea behind Vanguard Tax Exempt Bond and iShares National 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.