Correlation Between Financial Industries and Vanguard Financials
Can any of the company-specific risk be diversified away by investing in both Financial Industries and Vanguard Financials 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 Financial Industries and Vanguard Financials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Industries Fund and Vanguard Financials Index, you can compare the effects of market volatilities on Financial Industries and Vanguard Financials 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 Financial Industries with a short position of Vanguard Financials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and Vanguard Financials.
Diversification Opportunities for Financial Industries and Vanguard Financials
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Financial and Vanguard is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index and Financial Industries 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 Financial Industries Fund are associated (or correlated) with Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Financial Industries i.e., Financial Industries and Vanguard Financials go up and down completely randomly.
Pair Corralation between Financial Industries and Vanguard Financials
Assuming the 90 days horizon Financial Industries Fund is expected to under-perform the Vanguard Financials. In addition to that, Financial Industries is 1.12 times more volatile than Vanguard Financials Index. It trades about -0.15 of its total potential returns per unit of risk. Vanguard Financials Index is currently generating about -0.11 per unit of volatility. If you would invest 6,283 in Vanguard Financials Index on November 29, 2024 and sell it today you would lose (113.00) from holding Vanguard Financials Index or give up 1.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Industries Fund vs. Vanguard Financials Index
Performance |
| Timeline |
| Financial Industries |
| Vanguard Financials Index |
Financial Industries and Vanguard Financials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Industries and Vanguard Financials
The main advantage of trading using opposite Financial Industries and Vanguard Financials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries position performs unexpectedly, Vanguard Financials 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 Financials will offset losses from the drop in Vanguard Financials' long position.| Financial Industries vs. Invesco Vertible Securities | Financial Industries vs. Victory Incore Investment | Financial Industries vs. Advent Claymore Convertible | Financial Industries vs. The Gamco Global |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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