Correlation Between Vanguard Global and National Tax

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

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

Diversification Opportunities for Vanguard Global and National Tax

0.9

Correlation Coefficient

Vanguard Global  National Tax

Almost no diversification

The 3 months correlation between Vanguard and National is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Global Credit and The National Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Tax and Vanguard Global 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 Global Credit are associated (or correlated) with National Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Tax has no effect on the direction of Vanguard Global i.e., Vanguard Global and National Tax go up and down completely randomly.

Pair Corralation between Vanguard Global and National Tax

Assuming the 90 days horizon Vanguard Global Credit is expected to generate 1.06 times more return on investment than National Tax. However, Vanguard Global is 1.06 times more volatile than The National Tax Free. It trades about -0.08 of its potential returns per unit of risk. The National Tax Free is currently generating about -0.1 per unit of risk. If you would invest  1,945  in Vanguard Global Credit on September 25, 2024 and sell it today you would lose (23.00) from holding Vanguard Global Credit or give up 1.18% of portfolio value over 90 days.

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

Vanguard Global Credit  vs.  The National Tax Free

Vanguard Global Credit

Risk-Adjusted Performance

0 of 100

Very Weak

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

National Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The National Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, National Tax 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 Global and National Tax

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

The idea behind Vanguard Global Credit and The National Tax Free 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.