Correlation Between Vanguard Intermediate and Vanguard Materials

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

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

Diversification Opportunities for Vanguard Intermediate and Vanguard Materials

-0.13

Correlation Coefficient

Vanguard Intermediate  Vanguard Materials

Good diversification

The 3 months correlation between Vanguard and Vanguard is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Intermediate Term Bon and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index and Vanguard Intermediate 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 Intermediate Term Bond are associated (or correlated) with Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Vanguard Intermediate i.e., Vanguard Intermediate and Vanguard Materials go up and down completely randomly.

Pair Corralation between Vanguard Intermediate and Vanguard Materials

Assuming the 90 days horizon Vanguard Intermediate is expected to generate 2.49 times less return on investment than Vanguard Materials. But when comparing it to its historical volatility, Vanguard Intermediate Term Bond is 2.33 times less risky than Vanguard Materials. It trades about 0.04 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8,520  in Vanguard Materials Index on September 14, 2024 and sell it today you would earn a total of  1,766  from holding Vanguard Materials Index or generate 20.73% return on investment over 90 days.

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

Vanguard Intermediate Term Bon  vs.  Vanguard Materials Index

Vanguard Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Materials Index

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Intermediate and Vanguard Materials

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

The idea behind Vanguard Intermediate Term Bond and Vanguard Materials Index 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.