Correlation Between Vanguard Tax-managed and Vanguard Strategic

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Can any of the company-specific risk be diversified away by investing in both Vanguard Tax-managed and Vanguard Strategic 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 Strategic 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 Strategic Equity, you can compare the effects of market volatilities on Vanguard Tax-managed and Vanguard Strategic 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 Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Tax-managed and Vanguard Strategic.

Diversification Opportunities for Vanguard Tax-managed and Vanguard Strategic

0.92
  Correlation Coefficient

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 Strategic Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Strategic Equity 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 Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Strategic Equity has no effect on the direction of Vanguard Tax-managed i.e., Vanguard Tax-managed and Vanguard Strategic go up and down completely randomly.

Pair Corralation between Vanguard Tax-managed and Vanguard Strategic

Assuming the 90 days horizon Vanguard Tax Managed Small Cap is expected to generate 1.29 times more return on investment than Vanguard Strategic. However, Vanguard Tax-managed is 1.29 times more volatile than Vanguard Strategic Equity. It trades about 0.18 of its potential returns per unit of risk. Vanguard Strategic Equity is currently generating about 0.22 per unit of risk. If you would invest  8,545  in Vanguard Tax Managed Small Cap on May 31, 2025 and sell it today you would earn a total of  1,148  from holding Vanguard Tax Managed Small Cap or generate 13.43% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy98.41%
ValuesDaily Returns

Vanguard Tax Managed Small Cap  vs.  Vanguard Strategic Equity

 Performance 
       Timeline  
Vanguard Tax Managed 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Tax Managed Small Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Tax-managed showed solid returns over the last few months and may actually be approaching a breakup point.
Vanguard Strategic Equity 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Strategic Equity 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 Strategic may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Vanguard Tax-managed and Vanguard Strategic Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Tax-managed and Vanguard Strategic

The main advantage of trading using opposite Vanguard Tax-managed and Vanguard Strategic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Tax-managed position performs unexpectedly, Vanguard Strategic 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 Strategic will offset losses from the drop in Vanguard Strategic's long position.
The idea behind Vanguard Tax Managed Small Cap and Vanguard Strategic Equity 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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