Correlation Between Vanguard Total and SOFR

Can any of the company-specific risk be diversified away by investing in both Vanguard Total and SOFR 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 Total and SOFR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Total Bond and SOFR, you can compare the effects of market volatilities on Vanguard Total and SOFR 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 Total with a short position of SOFR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and SOFR.

Diversification Opportunities for Vanguard Total and SOFR

-0.61

Correlation Coefficient

Vanguard Total  SOFR

Excellent diversification

The 3 months correlation between Vanguard and SOFR is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and SOFR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOFR and Vanguard Total 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 Total Bond are associated (or correlated) with SOFR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOFR has no effect on the direction of Vanguard Total i.e., Vanguard Total and SOFR go up and down completely randomly.

Pair Corralation between Vanguard Total and SOFR

Considering the 90-day investment horizon Vanguard Total Bond is expected to under-perform the SOFR. In addition to that, Vanguard Total is 9.23 times more volatile than SOFR. It trades about -0.15 of its total potential returns per unit of risk. SOFR is currently generating about 0.49 per unit of volatility. If you would invest  9,938  in SOFR on September 22, 2024 and sell it today you would earn a total of  112.00  from holding SOFR or generate 1.13% return on investment over 90 days.

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

Vanguard Total Bond  vs.  SOFR

Vanguard Total Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

SOFR

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vanguard Total and SOFR

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

The idea behind Vanguard Total Bond and SOFR 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.