Correlation Between Vanguard Emerging and High-yield Municipal

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

By analyzing existing cross correlation between Vanguard Emerging Markets and High Yield Municipal Fund, you can compare the effects of market volatilities on Vanguard Emerging and High-yield Municipal 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 Emerging with a short position of High-yield Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Emerging and High-yield Municipal.

Diversification Opportunities for Vanguard Emerging and High-yield Municipal

0.2

Correlation Coefficient

Vanguard Emerging  High-yield Municipal

Modest diversification

The 3 months correlation between Vanguard and High-yield is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Emerging Markets and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal and Vanguard Emerging 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 Emerging Markets are associated (or correlated) with High-yield Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of Vanguard Emerging i.e., Vanguard Emerging and High-yield Municipal go up and down completely randomly.

Pair Corralation between Vanguard Emerging and High-yield Municipal

Assuming the 90 days horizon Vanguard Emerging Markets is expected to generate 3.28 times more return on investment than High-yield Municipal. However, Vanguard Emerging is 3.28 times more volatile than High Yield Municipal Fund. It trades about 0.03 of its potential returns per unit of risk. High Yield Municipal Fund is currently generating about 0.06 per unit of risk. If you would invest  3,718  in Vanguard Emerging Markets on August 30, 2024 and sell it today you would earn a total of  49.00  from holding Vanguard Emerging Markets or generate 1.32% return on investment over 90 days.

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

Vanguard Emerging Markets  vs.  High Yield Municipal Fund

Vanguard Emerging Markets

Risk-Adjusted Performance

2 of 100

Weak

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

High Yield Municipal

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High-yield Municipal 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 Emerging and High-yield Municipal

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

The idea behind Vanguard Emerging Markets and High Yield Municipal Fund 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.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.