Correlation Between New World and Vanguard Emerging
Can any of the company-specific risk be diversified away by investing in both New World 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 New World and Vanguard Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and Vanguard Emerging Markets, you can compare the effects of market volatilities on New World 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 New World with a short position of Vanguard Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Vanguard Emerging.
Diversification Opportunities for New World and Vanguard Emerging
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and Vanguard is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund 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 New World 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 New World Fund 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 New World i.e., New World and Vanguard Emerging go up and down completely randomly.
Pair Corralation between New World and Vanguard Emerging
Assuming the 90 days horizon New World is expected to generate 2.91 times less return on investment than Vanguard Emerging. But when comparing it to its historical volatility, New World Fund 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 3,603 in Vanguard Emerging Markets on September 1, 2024 and sell it today you would earn a total of 168.00 from holding Vanguard Emerging Markets or generate 4.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New World Fund vs. Vanguard Emerging Markets
Performance |
| Timeline |
| New World Fund |
| Vanguard Emerging Markets |
New World and Vanguard Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and Vanguard Emerging
The main advantage of trading using opposite New World and Vanguard Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World 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.| New World vs. Smallcap World Fund | New World vs. Capital World Growth | New World vs. American Funds Fundamental | New World vs. Capital Income Builder |
| Vanguard Emerging vs. Vanguard Developed Markets | Vanguard Emerging vs. Vanguard Reit Index | Vanguard Emerging vs. Vanguard Small Cap Index | Vanguard Emerging vs. Vanguard European Stock |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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