Correlation Between Vanguard Value and US Treasury

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

By analyzing existing cross correlation between Vanguard Value Index and US Treasury 20, you can compare the effects of market volatilities on Vanguard Value and US Treasury 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 Value with a short position of US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and US Treasury.

Diversification Opportunities for Vanguard Value and US Treasury

0.39

Correlation Coefficient

Vanguard Value  US Treasury

Weak diversification

The 3 months correlation between Vanguard and UTWY is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and US Treasury 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 20 and Vanguard Value 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 Value Index are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 20 has no effect on the direction of Vanguard Value i.e., Vanguard Value and US Treasury go up and down completely randomly.

Pair Corralation between Vanguard Value and US Treasury

Considering the 90-day investment horizon Vanguard Value Index is expected to generate 1.56 times more return on investment than US Treasury. However, Vanguard Value is 1.56 times more volatile than US Treasury 20. It trades about -0.25 of its potential returns per unit of risk. US Treasury 20 is currently generating about -0.55 per unit of risk. If you would invest  17,727  in Vanguard Value Index on October 7, 2024 and sell it today you would lose (691.00) from holding Vanguard Value Index or give up 3.9% of portfolio value over 90 days.

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

Vanguard Value Index  vs.  US Treasury 20

Vanguard Value Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Value Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

US Treasury 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, US Treasury 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 Value and US Treasury

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

The idea behind Vanguard Value Index and US Treasury 20 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.