Correlation Between Vanguard Total and SOFR

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

Diversification Opportunities for Vanguard Total and SOFR

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Vanguard and SOFR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and SOFR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOFR 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 SOFR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOFR has no effect on the direction of Vanguard Total i.e., Vanguard Total and SOFR go up and down completely randomly.

Pair Corralation between Vanguard Total and SOFR

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 22.05 times more return on investment than SOFR. However, Vanguard Total is 22.05 times more volatile than SOFR. It trades about 0.09 of its potential returns per unit of risk. SOFR is currently generating about 0.49 per unit of risk. If you would invest  28,129  in Vanguard Total Stock on September 22, 2024 and sell it today you would earn a total of  1,199  from holding Vanguard Total Stock or generate 4.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Vanguard Total Stock  vs.  SOFR

 Performance 
       Timeline  
Vanguard Total Stock 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.
SOFR 

Risk-Adjusted Performance

38 of 100

 
Weak
 
Strong
Very Strong
Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard Total and SOFR Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Total and SOFR

The main advantage of trading using opposite Vanguard Total and SOFR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total position performs unexpectedly, SOFR 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 SOFR will offset losses from the drop in SOFR's long position.
The idea behind Vanguard Total Stock and SOFR 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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