Correlation Between Vanguard Financials and Deutsche Short

Can any of the company-specific risk be diversified away by investing in both Vanguard Financials and Deutsche Short 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 Deutsche Short 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 Deutsche Short Term Municipal, you can compare the effects of market volatilities on Vanguard Financials and Deutsche Short 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 Deutsche Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and Deutsche Short.

Diversification Opportunities for Vanguard Financials and Deutsche Short

-0.29

Correlation Coefficient

Vanguard Financials  Deutsche Short

Very good diversification

The 3 months correlation between Vanguard and Deutsche is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Deutsche Short Term Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Short Term 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 Deutsche Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Short Term has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Deutsche Short go up and down completely randomly.

Pair Corralation between Vanguard Financials and Deutsche Short

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 15.12 times more return on investment than Deutsche Short. However, Vanguard Financials is 15.12 times more volatile than Deutsche Short Term Municipal. It trades about 0.16 of its potential returns per unit of risk. Deutsche Short Term Municipal is currently generating about -0.04 per unit of risk. If you would invest  5,452  in Vanguard Financials Index on September 15, 2024 and sell it today you would earn a total of  653.00  from holding Vanguard Financials Index or generate 11.98% return on investment over 90 days.

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

Vanguard Financials Index  vs.  Deutsche Short Term Municipal

Vanguard Financials Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Deutsche Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Short Term Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Deutsche Short 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 Deutsche Short

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

The idea behind Vanguard Financials Index and Deutsche Short Term Municipal 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.