Correlation Between Vanguard High-yield and Dana Small

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

By analyzing existing cross correlation between Vanguard High Yield Tax Exempt and Dana Small Cap, you can compare the effects of market volatilities on Vanguard High-yield and Dana Small 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 High-yield with a short position of Dana Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard High-yield and Dana Small.

Diversification Opportunities for Vanguard High-yield and Dana Small

-0.25

Correlation Coefficient

Vanguard High-yield  Dana Small

Very good diversification

The 3 months correlation between Vanguard and Dana is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Yield Tax Exempt and Dana Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Small Cap and Vanguard High-yield 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 High Yield Tax Exempt are associated (or correlated) with Dana Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Small Cap has no effect on the direction of Vanguard High-yield i.e., Vanguard High-yield and Dana Small go up and down completely randomly.

Pair Corralation between Vanguard High-yield and Dana Small

Assuming the 90 days horizon Vanguard High Yield Tax Exempt is expected to generate 0.23 times more return on investment than Dana Small. However, Vanguard High Yield Tax Exempt is 4.44 times less risky than Dana Small. It trades about -0.03 of its potential returns per unit of risk. Dana Small Cap is currently generating about -0.14 per unit of risk. If you would invest  1,055  in Vanguard High Yield Tax Exempt on December 29, 2024 and sell it today you would lose (6.00) from holding Vanguard High Yield Tax Exempt or give up 0.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Vanguard High Yield Tax Exempt  vs.  Dana Small Cap

Vanguard High Yield

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard High Yield Tax Exempt has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Vanguard High-yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dana Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dana Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Vanguard High-yield and Dana Small

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

The idea behind Vanguard High Yield Tax Exempt and Dana Small Cap 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.