Correlation Between Vanguard Tax-managed and Vanguard Institutional

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

By analyzing existing cross correlation between Vanguard Tax Managed Small Cap and Vanguard Institutional Total, you can compare the effects of market volatilities on Vanguard Tax-managed and Vanguard Institutional 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 Tax-managed with a short position of Vanguard Institutional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Tax-managed and Vanguard Institutional.

Diversification Opportunities for Vanguard Tax-managed and Vanguard Institutional

0.92

Correlation Coefficient

Vanguard Tax-managed  Vanguard Institutional

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Tax Managed Small Cap and Vanguard Institutional Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Institutional and Vanguard Tax-managed 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 Tax Managed Small Cap are associated (or correlated) with Vanguard Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Institutional has no effect on the direction of Vanguard Tax-managed i.e., Vanguard Tax-managed and Vanguard Institutional go up and down completely randomly.

Pair Corralation between Vanguard Tax-managed and Vanguard Institutional

Assuming the 90 days horizon Vanguard Tax Managed Small Cap is expected to generate 1.71 times more return on investment than Vanguard Institutional. However, Vanguard Tax-managed is 1.71 times more volatile than Vanguard Institutional Total. It trades about 0.15 of its potential returns per unit of risk. Vanguard Institutional Total is currently generating about 0.22 per unit of risk. If you would invest  9,147  in Vanguard Tax Managed Small Cap on September 1, 2024 and sell it today you would earn a total of  1,117  from holding Vanguard Tax Managed Small Cap or generate 12.21% return on investment over 90 days.

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

Vanguard Tax Managed Small Cap  vs.  Vanguard Institutional Total

Vanguard Tax Managed

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Tax Managed Small Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Tax-managed may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Vanguard Institutional

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Institutional Total are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Institutional may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Tax-managed and Vanguard Institutional

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

The idea behind Vanguard Tax Managed Small Cap and Vanguard Institutional Total 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.