Correlation Between Vanguard Materials and Vanguard Intermediate

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

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

Diversification Opportunities for Vanguard Materials and Vanguard Intermediate

0.39

Correlation Coefficient

Vanguard Materials  Vanguard Intermediate

Weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Vanguard Intermediate Term Bon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Intermediate and Vanguard Materials 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 Materials Index are associated (or correlated) with Vanguard Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Intermediate has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Vanguard Intermediate go up and down completely randomly.

Pair Corralation between Vanguard Materials and Vanguard Intermediate

Assuming the 90 days horizon Vanguard Materials Index is expected to under-perform the Vanguard Intermediate. In addition to that, Vanguard Materials is 2.77 times more volatile than Vanguard Intermediate Term Bond. It trades about -0.15 of its total potential returns per unit of risk. Vanguard Intermediate Term Bond is currently generating about -0.18 per unit of volatility. If you would invest  1,054  in Vanguard Intermediate Term Bond on September 21, 2024 and sell it today you would lose (40.00) from holding Vanguard Intermediate Term Bond or give up 3.8% of portfolio value over 90 days.

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

Vanguard Materials Index  vs.  Vanguard Intermediate Term Bon

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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 essential indicators, Vanguard Intermediate 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 Materials and Vanguard Intermediate

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

The idea behind Vanguard Materials Index and Vanguard Intermediate Term Bond 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.