Correlation Between Vanguard Financials and Bond Fund

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

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

Diversification Opportunities for Vanguard Financials and Bond Fund

-0.63

Correlation Coefficient

Vanguard Financials  Bond Fund

Excellent diversification

The 3 months correlation between Vanguard and Bond is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and The Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond Fund and Vanguard Financials 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 Financials Index are associated (or correlated) with Bond Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bond Fund has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Bond Fund go up and down completely randomly.

Pair Corralation between Vanguard Financials and Bond Fund

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 3.69 times more return on investment than Bond Fund. However, Vanguard Financials is 3.69 times more volatile than The Bond Fund. It trades about 0.19 of its potential returns per unit of risk. The Bond Fund is currently generating about -0.06 per unit of risk. If you would invest  5,351  in Vanguard Financials Index on September 12, 2024 and sell it today you would earn a total of  770.00  from holding Vanguard Financials Index or generate 14.39% return on investment over 90 days.

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

Vanguard Financials Index  vs.  The Bond Fund

Vanguard Financials Index

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials showed solid returns over the last few months and may actually be approaching a breakup point.

Bond Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Bond Fund 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 Financials and Bond Fund

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

The idea behind Vanguard Financials Index and The Bond 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.

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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.