Correlation Between Vanguard Short-term and Alcoa Corp

Can any of the company-specific risk be diversified away by investing in both Vanguard Short-term and Alcoa Corp 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-term and Alcoa Corp 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 Alcoa Corp, you can compare the effects of market volatilities on Vanguard Short-term and Alcoa Corp 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-term with a short position of Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Short-term and Alcoa Corp.

Diversification Opportunities for Vanguard Short-term and Alcoa Corp

-0.09

Correlation Coefficient

Vanguard Short-term  Alcoa Corp

Good diversification

The 3 months correlation between Vanguard and Alcoa is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Short Term Bond and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp and Vanguard Short-term 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 Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Vanguard Short-term i.e., Vanguard Short-term and Alcoa Corp go up and down completely randomly.

Pair Corralation between Vanguard Short-term and Alcoa Corp

Assuming the 90 days horizon Vanguard Short Term Bond is expected to under-perform the Alcoa Corp. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Short Term Bond is 15.07 times less risky than Alcoa Corp. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Alcoa Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,965  in Alcoa Corp on January 24, 2024 and sell it today you would earn a total of  670.00  from holding Alcoa Corp or generate 22.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Vanguard Short Term Bond  vs.  Alcoa Corp

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Alcoa Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Short-term and Alcoa Corp

The main advantage of trading using opposite Vanguard Short-term and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Short-term position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.

The idea behind Vanguard Short Term Bond and Alcoa Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.