Correlation Between Municipal Bond and Vanguard High

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Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Vanguard High 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 Municipal Bond and Vanguard High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Municipal Bond Fund and Vanguard High Yield Tax Exempt, you can compare the effects of market volatilities on Municipal Bond and Vanguard High 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 Municipal Bond with a short position of Vanguard High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Vanguard High.

Diversification Opportunities for Municipal Bond and Vanguard High

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Municipal and Vanguard is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding MUNICIPAL BOND FUND and VANGUARD HIGH-YIELD TAX-EXEMPT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard High-yield and Municipal Bond 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 Municipal Bond Fund are associated (or correlated) with Vanguard High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard High-yield has no effect on the direction of Municipal Bond i.e., Municipal Bond and Vanguard High go up and down completely randomly.

Pair Corralation between Municipal Bond and Vanguard High

Assuming the 90 days horizon Municipal Bond is expected to generate 1.4 times less return on investment than Vanguard High. But when comparing it to its historical volatility, Municipal Bond Fund is 1.39 times less risky than Vanguard High. It trades about 0.1 of its potential returns per unit of risk. Vanguard High Yield Tax Exempt is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  954.00  in Vanguard High Yield Tax Exempt on December 29, 2023 and sell it today you would earn a total of  114.00  from holding Vanguard High Yield Tax Exempt or generate 11.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

MUNICIPAL BOND FUND  vs.  VANGUARD HIGH-YIELD TAX-EXEMPT

 Performance 
       Timeline  
Municipal Bond Fund 

Risk-Adjusted Performance

0 of 100

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

Risk-Adjusted Performance

2 of 100

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

Municipal Bond and Vanguard High Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Municipal Bond and Vanguard High

The main advantage of trading using opposite Municipal Bond and Vanguard High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Vanguard High 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 High will offset losses from the drop in Vanguard High's long position.
The idea behind Municipal Bond Fund and Vanguard High Yield Tax Exempt 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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