Correlation Between Vanguard Short and PIMCO Broad

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

Diversification Opportunities for Vanguard Short and PIMCO Broad

0.62

Correlation Coefficient

Vanguard Short  PIMCO Broad

Poor diversification

The 3 months correlation between Vanguard and PIMCO is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Inflation and PIMCO Broad TIPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO Broad TIPS 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 PIMCO Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO Broad TIPS has no effect on the direction of Vanguard Short i.e., Vanguard Short and PIMCO Broad go up and down completely randomly.

Pair Corralation between Vanguard Short and PIMCO Broad

Given the investment horizon of 90 days Vanguard Short Term Inflation Protected is expected to generate 0.44 times more return on investment than PIMCO Broad. However, Vanguard Short Term Inflation Protected is 2.27 times less risky than PIMCO Broad. It trades about 0.12 of its potential returns per unit of risk. PIMCO Broad TIPS is currently generating about 0.03 per unit of risk. If you would invest  4,444  in Vanguard Short Term Inflation Protected on September 24, 2024 and sell it today you would earn a total of  438.00  from holding Vanguard Short Term Inflation Protected or generate 9.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Vanguard Short Term Inflation   vs.  PIMCO Broad TIPS

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Short Term Inflation Protected has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

PIMCO Broad TIPS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO Broad TIPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, PIMCO Broad is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Short and PIMCO Broad

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

The idea behind Vanguard Short Term Inflation Protected and PIMCO Broad TIPS 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.