Can any of the company-specific risk be diversified away by investing in both IShares 20 and Vanguard Extended 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 IShares 20 and Vanguard Extended into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares 20 Year and Vanguard Extended Duration, you can compare the effects of market volatilities on IShares 20 and Vanguard Extended 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 IShares 20 with a short position of Vanguard Extended. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 20 and Vanguard Extended.
Diversification Opportunities for IShares 20 and Vanguard Extended
The 3 months correlation between IShares and Vanguard is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares 20 Year and Vanguard Extended Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Extended and IShares 20 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 iShares 20 Year are associated (or correlated) with Vanguard Extended. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Extended has no effect on the direction of IShares 20 i.e., IShares 20 and Vanguard Extended go up and down completely randomly.
Pair Corralation between IShares 20 and Vanguard Extended
Considering the 90-day investment horizon IShares 20 is expected to generate 2.18 times less return on investment than Vanguard Extended. But when comparing it to its historical volatility, iShares 20 Year is 1.58 times less risky than Vanguard Extended. It trades about 0.13 of its potential returns per unit of risk. Vanguard Extended Duration is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 7,124 in Vanguard Extended Duration on March 6, 2024 and sell it today you would earn a total of 314.46 from holding Vanguard Extended Duration or generate 4.41% return on investment over 90 days.
Over the last 90 days iShares 20 Year has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, IShares 20 is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.
Over the last 90 days Vanguard Extended Duration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Vanguard Extended is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.