Correlation Between Vanguard Short and Vanguard European
Can any of the company-specific risk be diversified away by investing in both Vanguard Short and Vanguard European 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 Vanguard European into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Short Term Bond and Vanguard European Stock, you can compare the effects of market volatilities on Vanguard Short and Vanguard European 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 Vanguard European. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short and Vanguard European.
Diversification Opportunities for Vanguard Short and Vanguard European
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Vanguard and Vanguard is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Bond and Vanguard European Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard European Stock 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 Bond are associated (or correlated) with Vanguard European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard European Stock has no effect on the direction of Vanguard Short i.e., Vanguard Short and Vanguard European go up and down completely randomly.
Pair Corralation between Vanguard Short and Vanguard European
Assuming the 90 days horizon Vanguard Short Term Bond is expected to generate 0.37 times more return on investment than Vanguard European. However, Vanguard Short Term Bond is 2.68 times less risky than Vanguard European. It trades about -0.11 of its potential returns per unit of risk. Vanguard European Stock is currently generating about -0.32 per unit of risk. If you would invest 1,000.00 in Vanguard Short Term Bond on January 20, 2024 and sell it today you would lose (5.00) from holding Vanguard Short Term Bond or give up 0.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Vanguard Short Term Bond vs. Vanguard European Stock
Performance |
| Timeline |
| Vanguard Short Term |
| Vanguard European Stock |
Vanguard Short and Vanguard European Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Short and Vanguard European
The main advantage of trading using opposite Vanguard Short and Vanguard European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short position performs unexpectedly, Vanguard European 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 European will offset losses from the drop in Vanguard European's long position.The idea behind Vanguard Short Term Bond and Vanguard European Stock 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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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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