Correlation Between American Funds and Vanguard Emerging
Can any of the company-specific risk be diversified away by investing in both American Funds and Vanguard Emerging 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 American Funds and Vanguard Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds New and Vanguard Emerging Markets, you can compare the effects of market volatilities on American Funds and Vanguard Emerging 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 American Funds with a short position of Vanguard Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Vanguard Emerging.
Diversification Opportunities for American Funds and Vanguard Emerging
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Vanguard is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding American Funds New and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets and American Funds 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 American Funds New are associated (or correlated) with Vanguard Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of American Funds i.e., American Funds and Vanguard Emerging go up and down completely randomly.
Pair Corralation between American Funds and Vanguard Emerging
Assuming the 90 days horizon American Funds is expected to generate 2.86 times less return on investment than Vanguard Emerging. But when comparing it to its historical volatility, American Funds New is 1.13 times less risky than Vanguard Emerging. It trades about 0.02 of its potential returns per unit of risk. Vanguard Emerging Markets is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 9,113 in Vanguard Emerging Markets on September 1, 2024 and sell it today you would earn a total of 453.00 from holding Vanguard Emerging Markets or generate 4.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds New vs. Vanguard Emerging Markets
Performance |
| Timeline |
| American Funds New |
| Vanguard Emerging Markets |
American Funds and Vanguard Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Vanguard Emerging
The main advantage of trading using opposite American Funds and Vanguard Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Vanguard Emerging 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 Emerging will offset losses from the drop in Vanguard Emerging's long position.| American Funds vs. Smallcap World Fund | American Funds vs. Capital World Growth | American Funds vs. American Funds Fundamental | American Funds vs. Capital Income Builder |
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Check out your portfolio center.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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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