Correlation Between Vanguard High-yield and Invesco Municipal
Can any of the company-specific risk be diversified away by investing in both Vanguard High-yield and Invesco Municipal 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 Invesco Municipal 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 Invesco Municipal Income, you can compare the effects of market volatilities on Vanguard High-yield and Invesco Municipal 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 Invesco Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard High-yield and Invesco Municipal.
Diversification Opportunities for Vanguard High-yield and Invesco Municipal
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Invesco is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Yield Tax Exempt and Invesco Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Municipal 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 Invesco Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Municipal has no effect on the direction of Vanguard High-yield i.e., Vanguard High-yield and Invesco Municipal go up and down completely randomly.
Pair Corralation between Vanguard High-yield and Invesco Municipal
Assuming the 90 days horizon Vanguard High Yield Tax Exempt is expected to generate 1.03 times more return on investment than Invesco Municipal. However, Vanguard High-yield is 1.03 times more volatile than Invesco Municipal Income. It trades about 0.05 of its potential returns per unit of risk. Invesco Municipal Income is currently generating about 0.03 per unit of risk. If you would invest 1,048 in Vanguard High Yield Tax Exempt on January 26, 2024 and sell it today you would earn a total of 7.00 from holding Vanguard High Yield Tax Exempt or generate 0.67% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Vanguard High Yield Tax Exempt vs. Invesco Municipal Income
Performance |
Timeline |
Vanguard High Yield |
Invesco Municipal |
Vanguard High-yield and Invesco Municipal Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vanguard High-yield and Invesco Municipal
The main advantage of trading using opposite Vanguard High-yield and Invesco Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard High-yield position performs unexpectedly, Invesco Municipal 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 Invesco Municipal will offset losses from the drop in Invesco Municipal's long position.Vanguard High-yield vs. Vanguard Long Term Tax Exempt | Vanguard High-yield vs. Vanguard High Yield Tax Exempt | Vanguard High-yield vs. Strategic Advisers Municipal |
Invesco Municipal vs. Vanguard Long Term Tax Exempt | Invesco Municipal vs. Vanguard High Yield Tax Exempt | Invesco Municipal vs. Strategic Advisers Municipal |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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