Correlation Between Vanguard Short and FlexShares IBoxx

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

By analyzing existing cross correlation between Vanguard Short Term Inflation Protected and FlexShares iBoxx 5 Year, you can compare the effects of market volatilities on Vanguard Short and FlexShares IBoxx 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 Short with a short position of FlexShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short and FlexShares IBoxx.

Diversification Opportunities for Vanguard Short and FlexShares IBoxx

0.58

Correlation Coefficient

Vanguard Short  FlexShares IBoxx

Very weak diversification

The 3 months correlation between Vanguard and FlexShares is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Inflation and FlexShares iBoxx 5 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares iBoxx 5 and Vanguard Short 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 Short Term Inflation Protected are associated (or correlated) with FlexShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares iBoxx 5 has no effect on the direction of Vanguard Short i.e., Vanguard Short and FlexShares IBoxx go up and down completely randomly.

Pair Corralation between Vanguard Short and FlexShares IBoxx

Given the investment horizon of 90 days Vanguard Short Term Inflation Protected is expected to generate 0.43 times more return on investment than FlexShares IBoxx. However, Vanguard Short Term Inflation Protected is 2.35 times less risky than FlexShares IBoxx. It trades about 0.18 of its potential returns per unit of risk. FlexShares iBoxx 5 Year is currently generating about 0.05 per unit of risk. If you would invest  4,669  in Vanguard Short Term Inflation Protected on September 17, 2024 and sell it today you would earn a total of  233.00  from holding Vanguard Short Term Inflation Protected or generate 4.99% return on investment over 90 days.

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

Vanguard Short Term Inflation   vs.  FlexShares iBoxx 5 Year

Vanguard Short Term

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Inflation Protected are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Vanguard Short is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

FlexShares iBoxx 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares iBoxx 5 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Short and FlexShares IBoxx

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

The idea behind Vanguard Short Term Inflation Protected and FlexShares iBoxx 5 Year 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.