Correlation Between Vanguard Short and Ultra Short-term

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

By analyzing existing cross correlation between Vanguard Short Term Tax Exempt and Ultra Short Term Municipal, you can compare the effects of market volatilities on Vanguard Short and Ultra Short-term 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 Ultra Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short and Ultra Short-term.

Diversification Opportunities for Vanguard Short and Ultra Short-term

0.82

Correlation Coefficient

Vanguard Short  Ultra Short-term

Very poor diversification

The 3 months correlation between Vanguard and Ultra is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Tax Exempt and Ultra Short Term Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Short Term 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 Tax Exempt are associated (or correlated) with Ultra Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Short Term has no effect on the direction of Vanguard Short i.e., Vanguard Short and Ultra Short-term go up and down completely randomly.

Pair Corralation between Vanguard Short and Ultra Short-term

Assuming the 90 days horizon Vanguard Short Term Tax Exempt is expected to under-perform the Ultra Short-term. In addition to that, Vanguard Short is 1.24 times more volatile than Ultra Short Term Municipal. It trades about -0.28 of its total potential returns per unit of risk. Ultra Short Term Municipal is currently generating about -0.23 per unit of volatility. If you would invest  966.00  in Ultra Short Term Municipal on October 9, 2024 and sell it today you would lose (2.00) from holding Ultra Short Term Municipal or give up 0.21% of portfolio value over 90 days.

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

Vanguard Short Term Tax Exempt  vs.  Ultra Short Term Municipal

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ultra Short Term

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Municipal are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultra Short-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Short and Ultra Short-term

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

The idea behind Vanguard Short Term Tax Exempt and Ultra Short Term Municipal 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.