Correlation Between Real Return and Vanguard Inflation
Can any of the company-specific risk be diversified away by investing in both Real Return and Vanguard Inflation 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 Real Return and Vanguard Inflation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Return Fund and Vanguard Inflation Protected Securities, you can compare the effects of market volatilities on Real Return and Vanguard Inflation 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 Real Return with a short position of Vanguard Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Return and Vanguard Inflation.
Diversification Opportunities for Real Return and Vanguard Inflation
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Real and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Real Return Fund and Vanguard Inflation Protected S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Inflation and Real Return 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 Real Return Fund are associated (or correlated) with Vanguard Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Inflation has no effect on the direction of Real Return i.e., Real Return and Vanguard Inflation go up and down completely randomly.
Pair Corralation between Real Return and Vanguard Inflation
Assuming the 90 days horizon Real Return is expected to generate 1.36 times less return on investment than Vanguard Inflation. In addition to that, Real Return is 1.01 times more volatile than Vanguard Inflation Protected Securities. It trades about 0.03 of its total potential returns per unit of risk. Vanguard Inflation Protected Securities is currently generating about 0.04 per unit of volatility. If you would invest 2,271 in Vanguard Inflation Protected Securities on February 14, 2024 and sell it today you would earn a total of 16.00 from holding Vanguard Inflation Protected Securities or generate 0.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Real Return Fund vs. Vanguard Inflation Protected S
Performance |
| Timeline |
| Real Return Fund |
| Vanguard Inflation |
Real Return and Vanguard Inflation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Return and Vanguard Inflation
The main advantage of trading using opposite Real Return and Vanguard Inflation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Return position performs unexpectedly, Vanguard Inflation 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 Vanguard Inflation will offset losses from the drop in Vanguard Inflation's long position.The idea behind Real Return Fund and Vanguard Inflation Protected Securities 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.
Check out your portfolio center.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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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