Correlation Between Vanguard Materials and Vanguard Tax

Can any of the company-specific risk be diversified away by investing in both Vanguard Materials and Vanguard 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 Materials and Vanguard Tax 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 Tax Managed Balanced, you can compare the effects of market volatilities on Vanguard Materials and Vanguard 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 Materials with a short position of Vanguard Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and Vanguard Tax.

Diversification Opportunities for Vanguard Materials and Vanguard Tax

0.87

Correlation Coefficient

Vanguard Materials  Vanguard Tax

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Vanguard Tax Managed Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Tax Managed 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 Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Tax Managed has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Vanguard Tax go up and down completely randomly.

Pair Corralation between Vanguard Materials and Vanguard Tax

Assuming the 90 days horizon Vanguard Materials Index is expected to generate 2.28 times more return on investment than Vanguard Tax. However, Vanguard Materials is 2.28 times more volatile than Vanguard Tax Managed Balanced. It trades about 0.12 of its potential returns per unit of risk. Vanguard Tax Managed Balanced is currently generating about 0.2 per unit of risk. If you would invest  8,600  in Vanguard Materials Index on January 30, 2024 and sell it today you would earn a total of  1,403  from holding Vanguard Materials Index or generate 16.31% return on investment over 90 days.

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

Vanguard Materials Index  vs.  Vanguard Tax Managed Balanced

Vanguard Materials Index

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Materials Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Materials may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Vanguard Tax Managed

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Tax Managed Balanced are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Vanguard 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 Materials and Vanguard Tax

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

The idea behind Vanguard Materials Index and Vanguard Tax Managed Balanced 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.