Correlation Between Municipal Bond and Vanguard High-yield
Can any of the company-specific risk be diversified away by investing in both Municipal Bond and Vanguard High-yield 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-yield 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-yield 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-yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Municipal Bond and Vanguard High-yield.
Diversification Opportunities for Municipal Bond and Vanguard High-yield
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Municipal and Vanguard is 0.89. 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-yield. 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-yield go up and down completely randomly.
Pair Corralation between Municipal Bond and Vanguard High-yield
Assuming the 90 days horizon Municipal Bond Fund is expected to generate 0.71 times more return on investment than Vanguard High-yield. However, Municipal Bond Fund is 1.41 times less risky than Vanguard High-yield. It trades about -0.21 of its potential returns per unit of risk. Vanguard High Yield Tax Exempt is currently generating about -0.21 per unit of risk. If you would invest 975.00 in Municipal Bond Fund on January 26, 2024 and sell it today you would lose (7.00) from holding Municipal Bond Fund or give up 0.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Municipal Bond Fund vs. Vanguard High Yield Tax Exempt
Performance |
| Timeline |
| Municipal Bond |
| Vanguard High Yield |
Municipal Bond and Vanguard High-yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Municipal Bond and Vanguard High-yield
The main advantage of trading using opposite Municipal Bond and Vanguard High-yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Municipal Bond position performs unexpectedly, Vanguard High-yield 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-yield will offset losses from the drop in Vanguard High-yield's long position.| Municipal Bond vs. Vanguard Long Term Tax Exempt | Municipal Bond vs. Vanguard High Yield Tax Exempt | Municipal Bond 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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